Credit Counseling

A certified credit counselor may advise you on how to use credit wisely; help you establish a workable budget, keep track of your bills and manage your money; and, if appropriate for your situation, arrange a repayment plan with your creditors that may help consumers to avoid bankruptcy and ruining their credit standing. Consumer credit counselors encourage consumers to make every effort to pay their debts, and a certified specialist can assist you in planning for your financial security. The Better Business Bureau offers the following advice on selecting a credit counseling service that is right for your needs.

Choosing an Agency

If you decide to work with a credit counseling agency, take time to research your options and take care to select a reputable agency. Your goal should be to find a credit counseling agency that has satisfied clients, offers personalized service from trained counselors, can educate you on how to make appropriate financial choices and will provide you with the tools you need to achieve financial security.

Carefully evaluate advertisements. Good credit counselors often rely on past clients for referrals instead of soliciting business through television advertising, infomercials, telemarketing or spam e-mails.
Interview several agencies. If you know someone who has used such an agency in the past, ask for a recommendation.
Check complaint records. Contact the Better Business Bureau, state Attorney General and local consumer protection agency to find out about specific credit counseling organizations' records.
Check licensing and accreditation. Many states require credit counseling organizations to register or obtain a license. Do not hire an organization that has not fulfilled the requirements for your state.
Ask if the counselors are certified and by whom. Try to select an agency where an outside organization has certified the counselors. Also ask how the agency's employees are paid. Avoid organizations that pay employees a commission, which may influence the number or nature of services they decide you need.
Make sure services are personalized. A cookie-cutter approach may not address your specific financial situation. Look for plans tailored to fit your personal circumstances.
Determine the agency's privacy and security policies that are in place to protect your personal information, and make sure you are comfortable with the terms.
Gain a clear understanding of the services offered, including the opportunity to speak with a trained counselor to develop a personalized plan. Also determine what sort of services the agency provides regarding debt repayment plans.
Get verbal promises in writing. Only do business with agencies that offer formal written agreements or contracts. Carefully read through the terms of agreement or contract.
Fees. If there are fees (set-up fee, monthly service charges, etc.), the agency should explain how much and what they are based upon. In general, you should not expect to pay more than $75 in set-up fees or make a monthly payment that exceeds $40. This monthly payment fee is subject to state law, and the agency representative should be able to tell you the specific regulations for your state of residence.
Ask how the agency is funded. Most credit counseling agencies are partially funded through voluntary contributions from creditors who participate in Debt Management Plans.
Look for agencies that will help you manage your finances by offering educational brochures, counseling and workshops. If the agency insists that a debt management plan is the only option for clients, look elsewhere.

Debt Management Plans

A debt repayment or debt management plan (DMP) is a creditor-approved arrangement that allows you to repay your unsecured debts at reduced interest rates. The credit counselor will negotiate with creditors to reduce interest rates, eliminate late fees or other penalties. In turn, you will be expected to make a regular monthly payment to the credit counseling agency. Instead of writing several checks to various creditors each month, you make one payment (usually electronically) to the counseling agency. Your payments are then used to pay your creditors according to a payment schedule the counselor has developed in consultation with you.

Some credit counseling agencies charge a modest monthly fee for managing the plan; others charge a more significant fee. Agencies that are members of the National Foundation for Credit Counseling (NFCC) and the Association of Independent Consumer Credit Counseling Agencies (AICCA) are bound by standards that limit the charges for their services. Some states also have strict limitations. Before enrolling, ask what the cost will be. If the fee is too high or you are asked for a large "voluntary" contribution, then you may want to consider selecting another agency.

Red Flags

Before entering into a contract with a credit counseling agency, evaluate the services offered carefully. Proceed with caution if the company:

Demands account numbers or other financial details before discussing services or fees. Reputable credit counseling agencies are happy to provide free information upfront about their services.
Boasts monthly payments can be lowered by 30 to 50%. This bold statement is rarely, if ever, true.
Promises getting out of debt will be easy. Implementing strategies to reduce and control debt are rarely simple tasks.
Promises a "quick fix" to your financial problems. Avoid any agency that claims it can evaluate your situation in just minutes, or that offers to do so quickly over the phone. Experienced counselors may want to spend at least an hour with you reviewing your financial situation before recommending how to address your concerns, and may offer additional follow-up sessions.
Claims negative information, such as bankruptcy, will be removed from your credit report. It is illegal to make such a representation if the negative information reflects your true credit history. Accurate information cannot be removed from a person's credit report.
Issues blanket recommendations for a debt management plan. DMPs are not for everyone. Do not agree to establish one until you have reviewed your personal situation with a certified credit counselor who recommends such a plan and then customizes the plan to best manage your debt.
Requires "voluntary" contributions. Required "voluntary" contributions are not voluntary!
Is reluctant to provide the organization's business name and address. This is a clear sign of impending fraud. A toll-free telephone number or e-mail address is not sufficient. Scam artists typically avoid providing their physical location to thwart law enforcement detection.
Insists you make an immediate decision. Reputable credit counselors will permit you time to evaluate their offer, shop around and make a determination that best suits your financial situation. As you are doing your research, however, remember that timing is critical when addressing your financial situation. Delays can cause your circumstances to worsen.

For more information, contact:

Better Business Bureau
www.bbb.org

New York State Attorney General
(800) 771-7755
www.oag.state.ny.us

New York State Consumer Protection Board
(800) 697-1220
www.consumer.state.ny.us

This report is general in nature and is not intended as a reliability report on any company, service or product.