Credit counseling services can provide much-needed help during a financial crisis, or if you’re just trying to get your finances in order. But searching for the right one can be overwhelming, especially if you’re not sure what to look for or who to trust.
If you’re looking to find a credit counseling agency that can help you lower your debt and manage your budget more efficiently, it’s important to understand what makes an organization reputable, and what warning signs should make you steer clear.
Nonprofit Status and Accreditation
When looking for a credit counseling agency to help you get out of the red, make sure the organization is certified as a nonprofit and accredited, typically by the National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA). Reputable credit counseling agencies will provide free services that help you better manage your debt, build a budget that works for your lifestyle, and offer free financial literacy advice and workshops.
Proceed With Caution
If you encounter an agency that wants you to pay upfront or charges for educational resources, it’s probably a good idea to walk away. Any organization that wants payment before providing services is unlikely a legitimate organization, since nonprofit credit counseling companies are required by law to provide these services for free. You also want to be wary of organizations that look like credit counseling agencies but are actually debt settlement companies. These types of organizations are for-profit, charge high fees, and often advise you to stop paying your lenders completely during negotiations, risking your credit score in the process. Finally, while a debt management plan is a great option if you need help paying off your debt, any organization that only offers this service or pushes it too fast before understanding your full financial picture is one you should avoid.
Do Your Homework
According to the Federal Trade Commission (FTC), before your commit to any one counseling agency, you should ask the righ questions, including:
What services do you offer?
A reputable credit counseling agency should offer a range of services, from credit and housing counseling, to budget creation and debt management plan enrollment.
Do You Offer Free Information?
If the organization wants to charge you for any type of information, look somewhere else.
What Fees Do You Charge?
While a debt management plan usually has a monthly fee that can range from $25-$50 a month, counseling and educational services should be free.
What Are My Credit Counselor’s Qualifications?
Similarly to the actual credit counseling organization, your counselor should be certified in core personal finance, debt resolution, and counseling ethics.
What If I Can’t Afford to Pay Your Fees?
If you can’t afford to pay a certified credit counseling agency, they won’t turn you away.
Debt Management Plan
A debt management plan (DMP) can be a great way for you to pay off credit card debt with support and a timeline that provides a goal to work toward. But a counselor should only recommend one after they’ve spent substantial time gaining an understanding of your overall financial picture.
If you decide together that it’s the right move, your counselor can then go ahead and negotiate with your lenders to consolidate your loans into one affordable monthly payment, reduce your interest rate, and help you meet a pay-off timeline of three to five years.
Bottom Line
Just remember to ask the right questions and avoid anything that sounds too good to be true. Real progress takes support, but it also gives you the motivation to keep moving forward toward a financially healthier future.