| Using a Consumer credit Counseling services (credit counseling)
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Using a Consumer credit Counseling services
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There are different kinds of credit counseling companies. Some are for profit and some are non profit credit counseling services. Sure, you would opt for a non profit credit counseling company but there are certain pitfalls you must avoid. Some non-profit credit counseling companies may turn out to be rip-offs. You have to be very careful and ask if the credit counseling agency has a BBB association. NFCC can also help you locate a reputed credit counseling company in your neighborhood. NFCC accredited credit counseling companies are reputed and a good place to being with is their website. Alternatively you can find credit counselors by flipping the yellow pages or hop on to the internet and search for credit counselors.
Credit counseling - Preparation and procedures
Prepare for credit counseling to save time, and help your counselor give you the best advice. Here are the basic steps to prepare for credit counseling:
Make the initial contact
Prepare a draft of your current household budget
Gather together:
payroll stubs (last one for each income source)
last 2 years of tax returns
copy of last received billing statement... Read credit counseling article
Using a Consumer credit Counseling services
More and more people are turning to credit counselors to help them get out from under a mountain of debt. Some consumers are finding out the hard way, however, that not all credit counselors are created equal.
One so called "non-profit" counseling agency pockets your first month's check, which you assume is being applied to your debts, and calls it a "charitable contribution." Agencies like these may make you wary of seeking help from a consumer credit counseling agency, but if you know how to choose a reputable agency and you exercise a bit of caution, you can benefit from their services.
What Can I Expect From a Credit Counseling Agency?
Just what can you expect from a credit counseling agency? Besides providing general budgeting and money management advice to help you prevent future debt problems, they can negotiate with your creditors to get them to eliminate late fees, extend the term of your loan, or lower your interest rate.
If your debt is burdensome enough, the credit counselor will encourage you to enter into a debt repayment plan requiring you to pay a set amount to the agency each month, which they then pay to your creditors.
How Do I Choose a Credit Counseling Agency?
For starters, find out which credit counseling agencies near you are members of the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA), the largest and most respected networks of credit counseling agencies. Members of these associations are put through a rigorous accreditation process performed by independent third-party organizations, which carefully review the operating practices of the credit counseling agencies and the effectiveness of their counseling.
The widely-known Consumer Credit Counseling Service (CCCS) is a member of the NFCC. You can find a list of agencies near you in your local phone book yellow pages or online at NFCC's Web site or AICCCA's Web site (see link box on upper right for links to Web sites).
Once you've narrowed your search down to one or two agencies, it's a good idea to check them out with one or more of the following to see if complaints have been filed against them: your state Attorney General's office, local consumer protection agency, and Better Business Bureau. You can find contact info for your State Attorney General at the National Association of Attorneys General Web site.
Now you're ready to call the consumer credit counseling agencies and ask them a few questions such as:
What services do you provide?
Do you provide free educational materials? If so, how can I obtain them?
Are there fees for your services? What are they? Do I have to pay anything up front? Are there monthly fees? How are they calculated?
What training do your counselors have? Are they certified or accredited?
Who oversees or regulates your agency? Is your agency audited annually?
For a list of questions you should ask about debt repayment plans, see Fiscal Fitness: Choosing a Credit Counselor on the Federal Trade Commission's Web site.
If this seems like a lot of work, remember that you're trusting your credit record and your personal information to the credit counseling agency. You want to be sure that you're in good hands.
Should You Use a Credit Counselor or Do It Yourself?
After you've spoken to a representative of the credit counseling agency, you'll have to decide whether to use the agency's services or go it alone. Credit counseling agencies really can't do anything for you that you couldn't do for yourself, theoretically at least. You could attempt to negotiate with your creditors to lower interest rates, extend loan terms (to catch up on late payments or make your payments more manageable), or remove late fees. In reality, the average person will probably not be as effective at doing this as a credit counselor, but it may be worth a shot before you enter into a debt repayment plan.
Be honest with yourself: if a lack of spending discipline is what got you into the pickle you're in, you may not have the discipline to pay down your debt without the help of a credit counselor. If you decide to go this route, make sure not to enter into a debt repayment plan that requires a higher monthly payment than you can realistically handle.
It may surprise you to learn that most credit counseling agencies are funded primarily by credit card companies. They are therefore motivated to encourage you to pay as much as possible on your credit card debt, even if it's more than you can afford.
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How to choose a credit counseling agency
Credit counseling agencies can often help their clients get out of debt faster than they would without any assistance. However, some agencies don't always have their client's best interests in mind. Your financial future could depend on you asking the right questions first in order to make an informed decision.
Checklist: How to Choose a Credit Counseling Agency:
Choosing a credit counseling agency is a big step, and proof that you're serious about wanting to change your life for the better. Therefore, you want to make sure that the agency you choose truly has your best interest at heart.
The first thing you will find in your search is that not all credit counseling agencies are created equal. In fact, as detailed in an April 2003 report by the Consumer Federation of America and the National Consumer Law Center, there are some credit counseling agencies that end up doing more harm than good. The old adage is true - if it seems too good to be true, IT PROBABLY IS.
At a minimum, you should look for a non-profit, experienced credit counselor who can provide personalized service coupled with sound financial education to ensure a long term solution to debt. Here is a list of some of the more important items to help you on your way:
Ask what industry association they belong to -The credit counseling agency should be a member of AICCCA or NFCC, industry associations that require very high standards for their members. If they don't belong, they probably can't meet the standards.
Ask if they are accredited and by who - The credit counseling agency should have ISO accreditation or COA (Council on Accreditation) which means the agency has successfully completed independent audits to ensure that they are complying with industry standards. If the credit counseling agency is a member of AICCCA or NFCC, they must have one of these accreditations.
Ask if the credit counselors are certified and by who - Credit counselors should be certified by an independent certification body. Then you can be sure that they have a good knowledge of the subject matter. The AICCCA uses AFCPE certification (Association for Financial Counseling and Planning Education) and the NFCC certifies their own counselors.
Ask if they are licensed in your state - Unless your state does not require a license (you can check with your state government) they must be have a current license and must comply with the regulations of your state.
Check with the local Better Business Bureau - The credit counseling agency will probably have either a good or bad record with the BBB in their home state as well as in your state. Make sure there isn't a pattern of complaints against the agency.
Ask about all of the fees or contributions you will be asked to pay - Whether they are fees or contributions, they should be disclosed and should be reasonable (Anything significantly higher than a $50 initial consultation fee and $40 monthly fee or contribution would not be reasonable to me. Many states regulate the maximum that can be charged. Ask if your state is one of those. By all means - Make sure that the agency is not planning to keep your entire first months payment as their fee. This is a known bad practice in the industry and has been the source of state attorney general lawsuits as well as many individual actions against those agencies.
Find out what to expect in the credit counseling process - In the first place, did they ask you about your particular situation and tell you about some options or did they start "selling" you a solution, such as a debt management plan without knowing anything about you? Will a credit counselor help you prepare a spending plan or budget? Who will you be speaking to after the initial enrollment?
Make sure the credit counselor will not receive a bonus for enrolling you on a program -Once again, the AICCCA and NFCC do not allow their members to follow this questionable practice.
What type of ongoing educational services will you receive? - The better credit counseling agencies will provide monthly newsletters, website articles and training programs for you to take advantage of.various educational programs to help you read and understand your credit report as well as other personal finance subjects. As part of the non-profit mission of credit counseling agencies, this education should be provided to you for free.
If you enroll in a debt management plan - Make sure you will be out of debt within 5 years. This is the law. Also make sure you will get monthly statements from the agency showing your progress.
Ask how long they will hold your money before paying your creditors - There is no reason for the credit counseling agency to hold your check or money order any longer than a few days to ensure that it will clear the bank. Electronic payments can really help get your payments to your creditors faster. Ask about this option.
Ask if your money will be held in a separate Trust account - This will ensure that the credit counseling agency can't use your money for anything other than paying your creditors. Again, some states actually require this.
Ask for a copy of any contract so you can review it before you sign it -
The credit counseling contract should include:
Disclosure of the amount of your fee or contribution
Description of the services to be provided
An estimate of the payoff schedule for the debts
Disclosure of the termination provisions of the agreement
Options for resolution of disputes
The next two questions may be a little harder to get answers to, but they are very important.
Ask if any of the important functions of the credit counseling agency are "for-profit" - Some of the bad practices in the industry center around the use of related, for-profit companies that either perform payment processing, real estate leasing or software maintenance for the agency. This is usually coupled with high fees because it allows the owners of those companies to be paid salaries and other compensation from both companies.
Ask about the agency's board members - There should be more than 2 or 3 and they should be independent, meaning they are not also employees of the business. That way, you can be more assured that the agency is following ethical business practices. Again, the AICCCA and NFCC have high standards for dealing with this issue.
There are also some advertising red flags consumers should look for when searching for an agency:
Offers of unrealistic low monthly payments, money back offers and loan programs.
Aggressive sales tactics, such as internet spam or unsolicited phone calls to your home or office.
Saying you can do everything online, without ever speaking to a credit counselor. An initial application over e-mail or the internet may be okay as long as it is followed up by a comprehensive counseling session.
Using the phrase "debt consolidation" or "loan." Many disreputable organizations try to mask themselves as non-profit credit counseling agencies.
© 2005, InCharge® Education Foundation, Inc. All rights reserved.
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