When it comes to your family finances do you feel as if you were battling a 1000-pound marshmallow – where you punch it in one place and it just pops out in another – so that you never make any real progress? We can empathize because there were times in our lives when we had serious financial problems. One resource that could have helped us is consumer credit counseling – if we had just known about it.
What is consumer credit counseling?
This is where you go to an agency or company for financial counseling. You may be able to find one near where you live. If not you could go online and get help on websites like Consumercredit.com or the National Foundation for Credit Counseling (www.nfcc.org ).
Most honest credit counselors are nonprofit organizations and offer their services on the phone, online or in person. If possible, you should try to find one that has in-person counseling. You may be able to do this at your credit union or housing authority and many colleges and universities and branches of the US Cooperative Extension Service operate non-profit credit-counseling services.
How to choose a credit counselor
A good, first step in finding a credit counselor is to make a list of agencies you might do business with. Then contact your state’s attorney general’s office or your local Better Business Bureau and check out each one. The US Trustee Program offers a list of agencies that have been approved to provide pre-bankruptcy credit counseling. You could check to see if one of these agencies is near you.
What to ask
To find the best counselor for you, there are some questions you should ask. This includes:
What are the services you offer? You should choose an agency that has a variety of services including debt management classes and budget counseling.
Do you provide free information? There should be educational materials you could get free. Stay away from any organization that wants to charge you for information.
Will you help me develop a plan that will enable me to avoid future problems?
What fees do you charge? Do you have set-up or monthly fees? Be sure to get all its prices in writing.
Will I have to sign a contract or formal written agreement with you? Don’t sign anything unless you have first read it. If you get any verbal promises, ask for them in writing
What are your counselors’ qualifications? Are they certified or accredited by some outside organization? If so, what is it? How are they trained? Most experts say it’s best to use an agency where a non-affiliated party trained its counselors.
How do you pay your employees? Are they compensated more if I pay a fee or if I sign up for specific services, or contribute to the agency? If the answer is “yes,” this is a red flag and you should go somewhere else for help.
How credit counseling can help
A good credit counseling organization will give you advice about managing your money and debts. It will help you create a budget and provide you with free educational workshops and materials. Its counselors will discuss your entire financial situation and help you develop a plan to deal with your financial problems. In most cases, you will have an initial counseling session that will last about an hour and then there will be an offer of follow-up sessions.
What’s a debt management plan?
If you’re carrying too many debts or just can’t pay them, your credit counseling agency may recommend what’s called a debt management plan (DMP). Be aware that a DMP is not for everybody. It’s important to not sign off on a DMP until your credit counselor has spent time methodically reviewing your finances and has provided personalized advice as to how you could better manage your money. It might turn out that a DMP would be right for you but a reputable organization will also teach you money management skills and help you create a budget.
How a DMP works
If you sign up for a DMP, you will be required to send money every month to the credit counseling agency or company. It will use your that money to pay your debts such as student loans, medical bills and credit card bills – according to a payment schedule that the counselor works out with you and your lenders. In some cases, your creditors will agree to waive some of their fees or even reduce their interest rates. However, you should check with your creditors to make sure that they do offer the concessions that your counselor has described to you. You will need to make regular payments and on time in order to have a successful DMP. It could take you 48 months or more to complete your DMP. Be sure to ask your counselor how long he or she thinks it would take you to complete your plan. It is likely that you will have to give up your credit cards and agree to not apply for any additional rotating credit while you’re in your plan.
How to know if a DMP is right for you?
Before you sign up for a debt management plan, make sure you understand how it will work. You should also know how the amount of your payments will be determined and how often you will get status reports on your accounts. Be sure to ask if you can get your creditors to lower or eliminate your interest and finance charges or waive late fees. If the answer is yes, contact all your creditors to verify this is true. Also, ask them how long you have to be on your DMP before the benefits kick in. Finally, ask if there are debts that won’t be included in the DMP. This is important because you would then have to pay those on your own.
Is consumer credit counseling right for you?
Here’s a video featuring financial whiz, Suze Orman, that you help you decide if consumer credit counseling would help you with your financial struggles.