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WORKING WITH CREDIT COUNSELORS
Credit counseling is an area where you need to be cautious and make thoughtful decisions. While there are honest credit counseling agencies that provide classes and counseling, there are some credit counseling agencies that can be somewhat deceptive. If you trust the wrong company, you could end up in a bigger financial hole than when you started.
Many consumers with bad credit or heavy debt loads can benefit from low-fee classes and counseling sessions designed to improve their money management skills. Credit counseling works best for people with a steady income and unsecured debt, since secured debts like home loans, and auto loans aren’t covered.
When shopping for counseling, keep in mind that just because a company claims to be nonprofit, doesn't mean they are or that they have your best interest at heart. Beware of any company that immediately urges you to join a debt management plan. To find the right solution for your situation, a counselor needs to spend at least 45 to 60 minutes with you to understand what you need.
An ideal credit counseling agency keeps prices for their services as low as possible, and if you can't afford that, they'll help you for free. Avoid companies that charge a large fee and promise to return it upon completion of a debt-management program.
When you enroll in a debt-management program, you write a monthly check to a credit-counseling agency and the agency pays your creditors. A debt-management plan usually lasts three or four years. A comment stating that you're paying an account through a credit-counseling agency appears on your credit report and remains until the account is paid in full. Also, you will be required to cancel all of your credit cards, and you won't be able to apply for any new credit until your debt is significantly reduced.
With a credit counseling company, there is no signed commitment, none of your accounts are affected by the company, and you retain total control of how and when your debts are paid. Credit counseling doesn’t affect your credit rating or show up on your credit report.
Finding a reputable credit counselor will involve some research on your part after you have located a few via the Yellow Pages or the Internet. Contact more than one agency to compare what they offer. Consider meeting them in person instead of conducting all communication on the phone or online. Here are some things to look for:
- Many counseling agencies charge setup and monthly fees that can add up to between $250 and $5,000. Avoid any agency that charges a setup fee in excess of $50 or charges monthly program fees greater than $25.
- Many agencies will only handle debts for creditors with whom they have a "fair share" compensation arrangement, leaving consumers to manage their other debts. Avoid agencies that will only handle a portion of your unsecured debts.
- Look up the agency's reputation with the Better Business Bureau and your local consumer protection office.
- Look for accreditation by the Council on Accreditation, or COA. They are the largest accreditor of nonprofits in the United States, and they conduct in-depth audits of agencies.
- Ask whether the person you're talking to gets more money if you sign up for a debt management plan. You should avoid agencies where the agents are paid commissions to sell you services.
- Evaluate the agency’s services, add up the costs and figure out what the fees. Ask them if the fees are voluntary and only pay what you can afford.
- Ask the company if they're bonded and get each particular agency’s benefits in writing before signing up.
- Watch out for agencies that apply the first monthly payment you make under your debt management plan to their fees rather than making payments to creditors. This often results in late fees from creditors. Agencies may not disclose this up front and you need to ask about this.
- Make sure that your credit counseling agency is paying your bills on time. It's a good idea to check your monthly statements from creditors to make sure the payments are being made as promised.
- Some agencies won't follow through with their services, or may take your money and not make your payments. You'll need to stay on top of any agency you decide to work with.
How to report dishonest business practices by your credit counseling agency
If during the course of your relationship with a credit counseling agency you suspect a violation of the law, you can file a complaint with the Federal Trade Commission (FTC). If they see a pattern of complaints against the same agency, they will take action. Write the Federal Trade Commission Washington D.C. 20580 or Call: 1.877.382.4357, TTY: 1.866.653.4261, Or visit them online at: http://www.FTC.org
