People who are suffering from the negative personal, family, and health effects of out-of-control debt are inherently vulnerable to making bad decisions. If you have already unsuccessfully attempted debt consolidation, are feeling overwhelmed, or just don’t have any idea what to do to manage your debt situation, seeing a reputable provider of credit counseling services may be right for you.
Selecting a Credit Counseling Services Provider
Unfortunately the credit counseling services business has attracted unscrupulous operators, eager to take advantage of the vulnerability people experience when faced with seemingly hopeless financial problems. Here are some things to watch out for:
- Credit counseling services that ask for upfront money before providing any services
- Credit counseling agencies that do not clearly state the services they offer and the fees they charge
- Firms that guarantee they can solve all of your financial problems before they have even evaluated your current search debt situation
- Credit counseling organizations that claim they can use “little-known techniques” that only they are aware of to eliminate your debt
Before selecting a credit counseling agency, check lists of accredited credit counseling services in your area available from the National Foundation for Credit Counseling or the United States Trustee Program. An additional safeguard is to check with your community’s Better Business Bureau to make sure that there have not been a recent spate of unresolved complaints about the agency.
Working With Your Credit Counselor
The first rule of working with a credit counseling services provider is complete candor on your part. The credit counselor cannot provide you with the best possible help if you withhold critical information out of embarrassment or fear. Bring as much hard information as you can to your first meeting. Some items to bring may include:
- Copies of your credit card statements, including your payment and purchase history
- Statements describing the terms and current status of installment loans such as auto loans
- Information on your mortgage, if you have one
- Recent pay stubs and your past year’s income tax forms
- Statements showing deposit and withdrawal activity from checking and savings accounts
- Descriptions of other assets you may hold
Your credit counselor may begin by helping you to develop a livable budget that covers your basic living expenses and includes an allocation for debt repayment. Presuming that the allocation available for debt repayment is large enough to service your existing debt, the debt counselor may provide guidance on which debts are costing you the most money, and should be retired first. The debt counselor may also refer you to resources designed to strengthen your money management skills.
You should count on having multiple meetings with your debt counselor over time to assure that your debt retirement efforts are on track. Always remember that demand for credit counseling services is high, and your debt counselor’s time is valuable. Be sure to arrive on time for all meetings, and provide as much advance notice as possible if you need to miss a scheduled meeting.
Elimination of your most expensive debts or changes to your income both constitute opportunities for further discussions with your debt counselor. If a budget allocation for long-term savings is not already present, your debt counselor should be looking for an opportunity to provide such allocation at the earliest possible time.
If your outstanding debt payment responsibilities are too high, your debt counselor may refer you to alternatives services such as seeking a Debt Consolidation Loan or entering into a Debt Management Plan (DMP). The insights you have achieved by taking advantage of credit counseling services will improve your chances of getting the services you need from either of those choice. An experienced credit counselor may also be able to provide you with suggestions regarding lending or debt management sources best suited to your situation.
Impacts of Debt Counseling Services on Your Credit Score
Your decision to seek credit counseling services, in and of itself, will have no impact whatsoever on your credit score. It may even be looked upon favorably by some of your creditors. The credit counselor, however, may suggest that you take certain actions that could have a temporary negative effect on your score. Your credit counselor should clearly identify any such actions. Some of these possible actions include:
- Freezing one or more of the credit cards in your possession.
- Closing credit card accounts after you have paid them off.
- Entering into a Debt Management Plan that includes attempts to negotiate lower interest rates, forgiveness of incurred penalties, or settlement of debts without complete payment.
If you take the time to do your homework, and select the best available provider of credit counseling services, credit counseling can be an important first step to getting your personal finances under control and restoring your peace of mind. Remember, however, that even the best provider of credit counseling services cannot solve your problems by itself. Success will ultimately depend on your ability to discipline your spending habits.