Consumer Credit Counseling Service: Can Credit Counselors Really Help You Get Out Of Debt?

by Andrea

bankruptcy, credit rating, debt relief, monthly bills and utilities

too-much-paperwork-by-doctor-bob.JPG Credit counselors help consumers manage — and ultimately lower — their debt.  They promise to negotiate with creditors, create payment plans, and lower the interest rates of those in debt.  A credit counselor’s ultimate goal is to help you eliminate your debt. 
If you are in debt, a credit counselor will do 3 basic things for you:

1. Credit counselors help you consolidate several monthly payments from different accounts into one monthly payment.  The single payment is usually much less than the sum of the payments you were previously making.
2. Credit counselors get your creditors to reduce the interest rates on your credit accounts.  For example, a credit card with an interest rate of 30% may be reduced to as low as 5%. Or they may be able to eliminate interest payments altogether.  This will help you pay off debts faster.
3. Credit counselors help you bring delinquent accounts current.  They re-age the account by getting the company to list the account as current after you make several payments on time.

Self-Help vs Credit Counseling

Credit counseling can be very helpful for many people who are so deep in debt that they cannot see a way out. 

For others, however, using a credit counseling service can be bad for your credit rating. 

According to the Federal Trade Commission, self-help may be a better option. 

No one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost. — FTC

See how the FTC recommends to repair your credit on our own. 


Finding Reputable Credit Counselors

In addition to having lots of debt, if your credit rating is also low and getting worse, then it can’t hurt to use a credit counseling service.  Just make sure you find a legitimate credit counseling company that will help you manage your payments, rather than one that promises to make your debts disappear.
Not all credit-counseling services equal.  In fact, many are not legitimate. 
The Federal Trade Commission says to be wary of credit counseling organizations that: 

  • Charge high up-front or monthly fees for enrolling in credit counseling or a Debt Management Plan (DMP).

  • Pressure you to make “voluntary contributions,” another name for fees.

  • Will not send you free information about the services they provide without requiring you to provide personal financial information, such as credit card account numbers, and balances.

  • Try to enroll you in a DMP without spending time reviewing your financial situation.

  • Offer to enroll you in a DMP without teaching you budgeting and money management skills.

  • Demand that you make payments into a DMP before your creditors have accepted you into the program.

If you find yourself in a hard-sale situation where aggressive counselors are trying to part you from the money you have left, then you should walk away from that particular credit counseling agency. 

You also need to make sure that any credit counselors you use are legitimate, really have nonprofit status, and have no claims against them with the Better Business Bureau.

To be on the safe side, it may make good sense to choose a U.S. government-approved credit counseling service. 

Find credit counseling agencies near you.  

Find a certified credit counselor backed by the National Foundation for Credit Counseling.


Questions To Ask

If you’re interested in meeting with a credit counselor, be sure to interview a couple of different credit counselors before choosing the best one for you. According to the FTC, some of the important questions to ask when interviewing a credit counselor are:

  • What services do you offer?

  • Will you help me develop a plan for avoiding problems in the future?

  • What are your fees?

  • What if I can’t afford to pay your fees?

  • What qualifications do your counselors have? Are they accredited or certified by an outside organization? What training do they receive?

  • What do you do to keep information about me (including my address, phone number, and financial information) confidential and secure?

  • How are your employees paid? Are they paid more if I sign up for certain services, if I pay a fee, or if I make a contribution to your organization?


A Word About Bankruptcy

If your debt is to the point where you are considering bankruptcy, you may be interested to know that it is a legal requirement that you enroll in credit counseling before you can file for bankruptcy, in addition to debtor counseling after you file.

See, credit counseling can be good… so good, it’s even mandatory in some situations.