Should you get credit counseling?
If you are living paycheck to paycheck, worried about debt collectors, or can't seem to develop a workable budget, you may be considering a consumer credit counseling service. Your creditors may be willing to accept reduced payments if you enter a debt repayment plan with a reputable credit counseling service. Choosing whether or not to use one of these services and choosing which agency to work with can be difficult, so here are some tips on how to approach this decision.
If you want to work with a credit counseling agency, interview several. Here are some good questions to ask:
- What services do you offer?
- Do you have educational materials? If so, will you send them to me? Are they free?
- Can I access them on the Internet?
- In addition to helping me solve my immediate problem, will you help me develop a plan for avoiding problems in the future?
- What are your fees? Do I have to pay anything before you can help me? Are there monthly fees? What's the basis for the fees?
- What is the source of your funding?
- Will I have a formal written agreement or contract with you?
- How soon can you take my case?
- Who regulates, oversees and/or licenses your agency? Is your agency audited?
- Will I work with one counselor or several?
- What are the qualifications of your counselors? Are they accredited or certified? If not, how are they trained?
- What assurance do I have that information about me (including my address and phone number) will be kept confidential?
- How much do I have to owe to use your services?
- How do you determine the amount of my payment? What happens if this is more than I can afford?
- How does your debt repayment plan work? How will I know my creditors have received payments? Is client money put in a separate account from operating funds? How often can I get status reports on my accounts? Can I get access to my accounts online or by phone?
- Can you get my creditors to lower or eliminate interest and finance charges or waive late fees?
- Is a debt repayment plan my only option?
- What if I can't maintain the agreed-upon plan?
- What debts will be excluded from the debt repayment plan?
- Will you help me plan for payment of these debts?
- Who will help me if I have problems with my accounts or creditors?
- How secure is the information I provide to you?
You might wish to check with your state Attorney General, local consumer protection agency, and the Better Business Bureau to find out if consumers have filed complaints about the provider you are considering. Any reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If not, consider that a red flag and go elsewhere for help.
Be careful before choosing Consumer Credit Counseling. Research this option using the internet and verify everything. CCC companies have gotten a very bad name in recent years based on changes in their industry. Credit counseling was originally started by the credit card companies themselves as an alternative means for collecting their debt from consumers. These companies typically never reduce the amount owed to their participants, sometimes renegotiating late fees and over-the-limit charges. This is the "savings" that they advertise. According to NationalDebtRelief, "the success rate of debt management plans is about 20% to 26%." They also go on to recommend considering debt consolidation loans and Chapter 7 bankruptcies, citing their "better completion rates."
It is also important to note that when filing for bankruptcy, whether Chapter 7 or Chapter 13, that you are required to provide a certificate showing that you received credit counseling from an agency approved by the U.S. Trustee's office within the 180-day period before you file for bankruptcy.