Consider: Average total debt per American with a credit file stood, in September 2013, at $37,952 in mortgage debt and $15,898 in non-mortgage debt, according to a new study by the Urban Institute, a nonpartisan think tank in Washington, D.C. And if that wasn’t bad enough, more than one in three Americans have debt in collection.
No doubt many of these and other Americans, young and old, are wondering whether it make sense to use a credit counseling agency, or to seek other ways to reduce their debt. But how should they go about finding such help? Experts recommend the following.
What to avoid. Avoid “debt settlement” companies, says Carter.
Others agree. “Debt consolidation is just one debt management option and generally involves refinancing your unsecured debt with a new loan,” says Blayney, who is also president of Directions for Women, a McLean, Virginia firm that teaches women about money. “Beware of companies that say they are debt consolidators, but are in fact in the debt settlement business. This last service is of dubious value, usually comes at a high price, and often leaves the debtor in worse shape than before.”
In good company. Search for credit counseling agencies associated with reputable organizations such as the NFCC and the Association of Independent Consumer Credit Counseling Agencies, says Carter.
What services are offered? Once you’ve narrowed down your search, ask what services are offered and how they’re delivered, says Carter. “Do they just consolidate debt or will they help you develop a more comprehensive cash management plan to avoid falling back into debt? Are the counselors accredited by a non-affiliated third party? Are they paid more if you sign up for certain services? Will all information be kept confidential and secure? What’s in the written contract?”
Consider a reverse mortgage. For retirees who need debt relief, a reverse mortgage is an option, though you do have to pay off any existing mortgages on the home before getting one. “These loans have become more consumer-friendly: Lower fees, and now available as lines of credit, in addition to upfront loans,” says Blayney, “Because the house will secure the mortgage, the rates are almost certainly going to be lower than unsecured personal debt, which is a plus for seniors.”
Still, a reverse mortgage is not something to use without consulting with experts and family. “There are other features that retirees, and their children and beneficiaries, need to carefully consider before going this route,” Blayney says. “One negative is that refinancing through a reverse mortgage is not accompanied by an overall look at the existing debt, and the reasons why it exists in the first place.”