to paycheck? Worried about debt collectors? Can't seem to develop
a workable budget, let alone save money for retirement?
sounds familiar, you may want to consider the services of a credit
There are many reputable credit counseling organizations that
will work with you to solve your financial problems. Some of the
top companies include Debt Advocates,
American Consumer Credit Counseling,
and American Debt Resources, Inc.
counseling organizations are nonprofit and work with you to solve
your financial problems. But beware — just because an organization
says it is "nonprofit" doesn't guarantee that its services
are free or affordable, or that its services are legitimate. In
fact, some credit counseling organizations charge high fees, some
of which may be hidden, or urge consumers to make "voluntary"
contributions that cause them to fall deeper into debt.
counselors offer services through local offices, the Internet,
or on the telephone. If possible, find an organization that offers
in-person counseling. Many universities, military bases, credit
unions, housing authorities, and branches of the U.S. Cooperative
Extension Service operate nonprofit credit counseling programs.
Your financial institution, local consumer protection agency,
and friends and family also may be good sources of information
a Credit Counseling Organization
credit counseling organizations advise you on managing your money
and debts, help you develop a budget, and usually offer free educational
materials and workshops. Their counselors are certified and trained
in the areas of consumer credit, money and debt management, and
budgeting. Counselors discuss your entire financial situation
with you, and help you develop a personalized plan to solve your
money problems. An initial counseling session typically lasts
an hour, with an offer of follow-up sessions.
credit counseling agency should send you free information about
itself and the services it provides without requiring you to provide
any details about your situation. If a firm doesn't do that, consider
it a red flag and go elsewhere for help.
developed a list of potential counseling agencies, check them
out with your state Attorney General, local consumer protection
agency, and Better Business Bureau. They can tell you if consumers
have filed complaints about them. (If they don't have complaints
about them, it's not a guarantee that they're legitimate.) Then,
it's time for you to interview the final "candidates."
Here are some questions to ask to help you find the best counselor
services do you offer?
Look for an organization that offers a range of services, including
budget counseling, and savings and debt management classes. Avoid
organizations that push a debt management plan (DMP) as your only
option before they spend a significant amount of time analyzing
your financial situation.
you offer information? Are educational materials available for
Avoid organizations that charge for information.
addition to helping me solve my immediate problem, will you help
me develop a plan for avoiding problems in the future?
are your fees? Are there set-up and/or monthly fees?
Get a specific price quote in writing.
if I can't afford to pay your fees or make contributions?
If an organization won't help you because you can't afford to
pay, look elsewhere for help.
I have a formal written agreement or contract with you?
Don't sign anything without reading it first. Make sure all verbal
promises are in writing.
you licensed to offer your services in my state?
are the qualifications of your counselors? Are they accredited
or certified by an outside organization? If so, by whom? If not,
how are they trained?
Try to use an organization whose counselors are trained by a non-affiliated
assurance do I have that information about me (including
my address, phone number, and financial information) will be kept
confidential and secure?
are your employees compensated? Are they paid more if
I sign up for certain services, if I pay a fee, or if I make a
contribution to your organization?
If the answer is yes, consider it a red flag and go elsewhere
financial problems stem from too much debt or your inability to
repay your debts, a credit counseling agency may recommend that
you enroll in a debt management plan. A DMP alone is not credit
counseling, and DMPs are not for everyone. Consider signing on
for one of these plans only after a certified credit counselor
has spent time thoroughly reviewing your financial situation,
and has offered you customized advice on managing your money.
Even if a DMP is appropriate for you, a reputable credit counseling
organization still will help you create a budget and teach you
money management skills.
a DMP Works
You deposit money each month with the credit counseling organization.
The organization uses your deposits to pay your unsecured debts,
like credit card bills, student loans, and medical bills, according
to a payment schedule the counselor develops with you and your
creditors. Your creditors may agree to lower your interest rates
and waive certain fees, but check with all your creditors to be
sure that they offer the concessions that a credit counseling
organization describes to you. A successful DMP requires you to
make regular, timely payments, and could take 48 months or longer
to complete. Ask the credit counselor to estimate how long it
will take for you to complete the plan. You also may have to agree
not to apply for — or use — any additional credit
while you're participating in the plan.
a DMP Right For You?
In addition to the questions already listed, here are some other
important ones to ask if you're considering enrolling in a DMP.
a DMP the only option you can give me? Will you provide
me with on-going budgeting advice, regardless of whether I enroll
in a DMP?
If an organization offers only DMPs, find another credit counseling
organization that also will help you create a budget and teach
you money management skills.
does your DMP work? How will you make sure that all my
creditors will be paid by the applicable due dates and in the
correct billing cycle?
If a DMP is appropriate, sign up for one that allows all your
creditors to be paid before your payment due dates and within
the correct billing cycle.
is the amount of my payment determined? What if the amount
is more than I can afford? Don't sign up for a DMP if you can't
afford the monthly payment.
often can I get status reports on my accounts? Can I
get access to my accounts online or by phone? Make sure that the
organization you sign up with is willing to provide regular, detailed
statements about your account.
you get my creditors to lower or eliminate interest and finance
charges, or waive late fees?
If yes, contact your creditors to verify this, and ask them how
long you have to be on the plan before the benefits kick in.
debts aren't be included in the DMP?
This is important because you'll have to pay those bills on your
I have to make any payments to my creditors before they will accept
the proposed payment plan?
Some creditors require a payment to the credit counselor before
accepting you into a DMP. If a credit counselor tells you this
is so, call your creditors to verify this information before you
send money to the credit counseling agency.
will enrolling in a DMP affect my credit?
Beware of any organization that tells you it can remove accurate
negative information from your credit report. Legally, it can't
be done. Accurate negative information may stay on your credit
report for up to seven years.
you get my creditors to "re-age" my accounts —
that is, to make my accounts current? If so, how many
payments will I have to make before my creditors will do so?
Even if your accounts are "re-aged," negative information
from past delinquencies or late payments will remain on your credit
to Make a DMP Work for You
The following steps will help you benefit from a DMP, and avoid
falling further into debt.
to pay your bills until the plan has been approved by your creditors.
If you stop making payments before your creditors have accepted
you into a plan, you'll face late fees, penalties, and negative
entries on your credit report.
Contact your creditors and confirm that they
have accepted the proposed plan before you send any payments to
the credit counseling organization for your DMP.
Make sure the organization's payment schedule
allows your debts to be paid before they are due each month. Paying
on time will help you avoid late fees and penalties. Call each
of your creditors on the first of every month to make sure the
agency has paid them on time.
Review monthly statements from your creditors
to make sure they have received your payments.
If your debt management plan depends on your creditors agreeing
to lower or eliminate interest and finance charges, or waive late
fees, make sure these concessions are reflected on your statements.
negotiation is not the same thing as credit counseling or a DMP.
It can be very risky and have a long term negative impact on your
credit report and, in turn, your ability to get credit. That's
why many states have laws regulating debt negotiation companies
and the services they offer.
Debt negotiation firms may claim they're nonprofit. They also
may claim that they can arrange for your unsecured debt —
typically, credit card debt — to be paid off for anywhere
from 10 to 50 percent of the balance owed. For example, if you
owe $10,000 on a credit card, a debt negotiation firm may claim
it can arrange for you to pay off the debt with a lesser amount,
often pitch their services as an alternative to bankruptcy. They
may claim that using their services will have little or no negative
impact on your ability to get credit in the future, or that any
negative information can be removed from your credit report when
you complete the debt negotiation program. The firms usually tell
you to stop making payments to your creditors, and instead, send
your payments to the debt negotiation company. The firms may promise
to hold your funds in a special account and pay the creditors
on your behalf.
Just because a debt negotiation company describes itself as a
"nonprofit" organization, there's no guarantee that
the services they offer are legitimate. There also is no guarantee
that a creditor will accept partial payment of a legitimate debt.
In fact, if you stop making payments on a credit card, late fees
and interest usually are added to the debt each month. If you
exceed your credit limit, additional fees and charges also can
be added. All this can quickly cause a consumer's original debt
to double or triple. What's more, most debt negotiation companies
charge consumers substantial fees for their services, including
a fee to establish the account with the debt negotiator, a monthly
service fee, and a final fee of a percentage of the money you've
have no obligation to agree to negotiate the amount a consumer
owes, they have a legal obligation to provide accurate information
to the credit reporting agencies, including your failure to make
monthly payments. That can result in a negative entry on your
credit report. And in certain situations, creditors may have the
right to sue you to recover the money you owe. In some instances,
when creditors win a lawsuit, they have the right to garnish your
wages or put a lien on your home. Finally, the Internal Revenue
Service may consider any amount of forgiven debt to be taxable
to Rip-offs: Steer clear of companies that:
they can remove your unsecured debt
that unsecured debts can be paid off with pennies on the dollar
- claim that
using their system will let you avoid bankruptcy
substantial monthly service fees
payment of a percentage of savings
- tell you
to stop making payments to or communicating with your creditors
you to make monthly payments to them, rather than with your
- claim that
creditors never sue consumers for non-payment of unsecured debt
that using their system will have no negative impact on your
- claim that
they can remove accurate negative information from your credit
- If you
decide to work with a debt negotiation company, be sure to check
it out with your state Attorney General, local consumer protection
agency, and the Better Business Bureau. They can tell you if
any consumer complaints are on file about the firm you're considering
doing business with. Also, ask your state Attorney General if
the company is required to be licensed to work in your state
and, if so, whether it is.