Credit counseling agencies are for people who have problems paying debts. If you can’t pay bills on time, have outstanding credit card debt, and want advice on money management, credit counseling agencies can help and are in some cases an alternative to filing bankruptcy.
Credit counseling services include:
-Money management education for debtors
-Budget and debt counseling
The Debt Management Plan
A DMP is where the credit counseling agency negotiates with your credit card companies and other creditors. Typically, the credit counseling agencies goal is to negotiate for lower interest rates and monthly payments to your creditors. You will make a large payment to the agency, and they’ll send separate payments to all your creditors.
While some credit counseling agencies come at no cost, some do charge a fee (usually small). Also, you should be weary of using a credit repair clinic, who sometimes trick individuals into their services. In essence, credit repair clinics only do what you could easily do for yourself. They offer to fix your credit with services available to everyone. It’s best to avoid any company offering to repair your credit for free; most are scams.
Choosing A Credit Counseling Agency
There are a variety of ways to make sure you get the right services for your situation. Just as you shouldn’t hire the first bankruptcy attorney you find, you should research credit counseling agencies and compare them. Here are some notes on what you should look for.
-They must me a registered nonprofit (accredited nonprofit)
-Are a member of the NFCC or AICCCA
-Employ certified, professional counselors
-Provide counseling and education
-Offer more than one debt management option
-Are upfront about all fees
-Have a clean business record
Let’s go over some of these in more detail.
Credit counselor should have not only completed a training program within the company, but also passed a certification exam; the certification exam tests for understanding in counseling, budgeting, credit and consumer law, debt management, and bankruptcy law. You want this exam for your counselors to be done by an outside, independent agency such as Financial Counseling and Planning Education.
Counseling and Education
You want to go over all the details on your current economic status in person, by phone, or on the web. It usually takes about an hour and you’ll go over income, expenses, debt, why you’re in a tough situation, and your future goals. After this session, you should get a budget plan, a list of steps and to begin, and notes on your options.
You should never pay more than $50 to establish your work with the the credit counseling agency, and future monthly payments should never exceed $50. Also, the agency must be made aware if you cannot afford these fees, and should waive them.
When Filing Bankruptcy
In some cases, you might want to actually file bankruptcy, whether it’s Chapter 7 or Chapter 13 bankruptcy. Sometimes you simply cannot pay back all these fees. In any case, you have nothing to lose and a lot to gain when working with debt counseling agencies.