Who to look for - and who to avoid
Struggling to keep up with your payments? When your financial situation calls for it, seeking the services of a good credit counseling agency can be a smart move that can help you get back on track. Just don’t wait until you’re in over your head.
Decide if you need credit counseling.
You may want to consider contacting a credit counseling agency if any of the following applies to you:
- You are unable to pay the minimum balance due on your credit cards each month.
- You consistently pay one or more of your bills late.
- Creditors and collection agencies are calling you, demanding payment.
A credit counseling agency may be able to help relieve the stress and reduce the number of collection calls you receive. They will also work with each of your creditors to attempt to lower your APR and monthly payments.
What to expect from a credit counseling agency.
Credit counseling begins with a complete review of your personal situation, including your debts and income. The counseling agency may then recommend a Debt Management Plan (DMP). The agency will renegotiate your APR and monthly payments with each creditor. Once approved, you will make one monthly payment to your counseling agency who will then distribute the funds to each creditor for you.
Here are some things to keep in mind:
- Be prepared to discuss your household income and expenses. It’s helpful to have any statements or bills readily available.
- Be open and honest about your situation. Remember, you’re not alone. There are many people who experience financial hardship during their lives.
Some important things you should know.
There’s a world of difference between debt settlement and debt management. Debt settlement companies can ultimately cause greater damage to your credit. Debt management is the better option. You’ll be able to work with a non-profit agency that will help you pay-off your debt and improve your credit. Here are the facts about each type of firm:
Debt Management Agencies:
- Agencies are generally non-profit.
- There are little to no fees.
- Professional credit counselors are available to provide financial education and many agencies are also approved through HUD to offer mortgage counseling.
- Entire balances are paid-off within five years.
- Creditors work with accredited debt management agencies to negotiate payment arrangements.
Debt Settlement Companies:
- Debt settlement companies charge fees up to 15% of total balances.
- Debt settlement companies tend to be for-profit agencies.
- Little or no financial education is provided to customers.
- Accounts are often allowed to fall further behind or be written off before a settlement is finally negotiated.
- Your credit may be negatively impacted for up to seven to ten years and you may owe additional taxes if they do work out a settlement.
- Creditors often refer customers working with debt settlement agencies to their attorneys, who may initiate legal proceedings.
Take action now.
Find a legitimate, accredited credit counseling agency by contacting the National Foundation for Credit Counseling (online at www.nfcc.org, or by phone at 1.800.388.2227). Another good resource is the Association of Independent Consumer Credit Counseling Agencies (online at www.aiccca.org, or by phone at 1.866.703.8787).
What's next? How to repair your credit history