Many credit counseling organizations provide valuable advice, education and
assistance, but consumers need to be wary of the "quick fixes" offered by some
organizations. Consumers can help protect themselves from deceptive credit
counseling practices by knowing how to choose a credit counselor. If you are
having a difficult time repaying your debts, a counseling agency may be able to
work out a Debt Management Plan for you. Credit counseling agencies negotiate
special programs with creditors that are not available to the general public.
Choosing an honest reputable credit counseling agency can be one of the most
important personal finance decisions of your life. Use the following as a
guideline to help you choose wisely.
A certified counselor will do your budget, including your expenses and income.
They will figure out the total amount of debt you owe and arrive at a figure
you can pay each month toward that debt while satisfying your creditors'
Once all parties agree on the monthly amount required to liquidate your debts,
you send that amount to the counseling agency each month. They distribute the
funds to your creditors, who have agreed to accept a lower interest rate (and
perhaps a lower monthly payment).
The greatest savings you will see by using a credit counseling agency is that
they can get creditors to lower or eliminate interest as well as other finance
charges, late payments, and other penalties.
Ask specific questions concerning repayment plans, such as what happens if
repayment is more than you can afford and how secure is the information they
Since most non-profit counseling agencies have to charge a start-up and monthly
maintenance fee, find out up front what the cost will be and make sure they put
it in writing. Carefully read through any written agreement that a credit
counseling organization offers. It should describe the services to be
performed; the payment terms for these services, how long it may take to
achieve results; any guarantees offered; and the organization's business name
When selecting a credit counseling agency, check with the Better Business
Bureau to find out if consumers have filed complaints about the provider you
are considering. Most importantly, find out if the issues have been resolved.
Make sure to use a non-profit organization. A non-profit status alone does not
insure that the organization will do a good job, but coupled with fair fees and
educational material, it is a good indication of a reliable organization. A
good place to start is the Association of Independent Consumer Credit
Counseling Agencies, www.AICCCA.org.
Remember that credit counseling agencies cannot erase your credit history. If
an agency claims to be able to do so, do not work with them. Under the Fair
Credit Reporting Act, accurate information about your accounts can stay on your
credit report for up to seven years.
Find out what other sources of funding they receive, who regulates and audits
their operation, if they are certified by the International Standard of
Operations (ISO compliant), if their counselors are certified and by which
association, and if there is a formal written agreement.
Ask if you will continue to receive statements from your creditors showing what
interest rates you are paying and the reduction of your debt each month.
Make sure that your creditors are willing to work with the agency you choose.
If they are, follow up with those creditors regularly to make sure your debt is
being paid off.