Tuesday, August 12, 2014

Choosing a Credit Counselor

Choosing a Credit Counselor

Are you finding yourself living for you next paycheck?  Are you screening phone calls to avoid debt collectors? Are you having trouble developing a budget that you can stick to?  If you said yes to any of these you may want to consider the meeting with a credit counselor.

Any reputable counselor works with non-profit organizations.  You can find them online, in the yellow pages, and at local offices.  Your best bet is to find a counselor that can meet with you face-to-face.  Your local consumer protection agency will be a good source of information and can provide referrals.

Choosing a Reputable Credit Counseling Organization

A credit counseling organization will advise you on ways to manage your income and debts, help develop a budget, and offer educational literature and workshops, usually at no charge.  Their staff should be certified and trained in debt management and consumer credit counseling.  They will discuss your financial situation and help develop a plan to resolve your debt problems.  Expect to spend at least an hour with the counselor in your first session.

Avoid counseling services that pressure you for information when you initially make contact.  They should not require such information in order to send information about their organization and the services they provide.  If they don’t that should be a red flag.

Once you have identified a few counseling agencies, check them out with your state’s Attorney General or the nearest consumer protection agency.  You might also check the Better Business Bureau.  Those agencies can tell you if complaints have been filed against any organization on your list.

When you are satisfied with your list of counseling organizations, you will want to interview them.  Here are some suggested questions.

  1. Ask what services they offer.  You’re looking for an organization that can offer a range of services.
  2. Ask what materials they can provide at no cost.  Organizations that charge for materials should be avoided.
  3. Can they offer help with your immediate problem?
  4. Is there a charge for their services?  If so, get a quote on all relevant fees and charges.  If they organization is unwilling to help you if you cannot pay, look elsewhere.
  5. Do they require you to sign a contract for their services?  Don't sign any contract without reading it first.  If they make promises, get it in writing.
  6. Ask if they are licensed to offer services in your state.
  7. Are their counselors certified or accredited? 
  8. Confirm that your information will remain confidential.
  9. Ask how their counselors are paid. Avoid organizations that pay counselors on commission for services they offer.

The Telemarketing Sales Rule

Companies that contact you via the telephone and offer debt relief services are required by the Federal Trade Commission to provide details about their fees and terms of their service before you sign up.  It prohibits them from charging a fee before they settle your debt.  So for example, if the company promises to get you enrolled into a Debt Management Program, they cannot collect a fee until they actually do so.
This applies to quick cash, cash advance, or payday loan services too.  They must provide all details of the loan and your costs up front before you sign the loan agreement.

Other Debt Relief Options

Working out a solution through a credit counselor is not the only option to deal with your debt.  You might consider a direct negotiation with your credit card provider, investigate debt settlement companies, or consider bankruptcy.

Call your credit card provider even if they have rejected you previously.  A debt settlement company would do that on your behalf, but why pay them if you can do it yourself.  Be persistent, your goal is to establish a modified payment schedule that reduces your monthly cash needs.

Creditors typically write off a debt after 180 days.  That will be reflected in your credit score and you’ll still be responsible for the debt.  So creditors will often negotiate with you despite having written off the debt.
If you are so far in debt and circumstances leave you unable to pay it off, bankruptcy may be your best option.   Chapter 13 bankruptcy allows people to pay off their debts over a 3 to 5 year period without loss of any property such as a home or car.  When the payments are completed any remaining debt is discharged.  As part of a Chapter 13 filing you will be required to receive counseling from a government approved service no more than six months prior to your filing.

Debt settlement may be an option for you too.  These programs are typically operated by for-profit companies.  The debt settlement company will negotiate a settlement with your creditors for a lump sum payment in an amount that is less than what is owed.  The companies typically will require you to set make monthly payments in to an escrow account to pay off the lump sum when it is due.  They profit on the difference between your payments and what they pay your creditors.