Managing Debt with Credit Counseling

Is it time for credit counseling?

When a consumer’s financial life is infringing on all aspects of his or her life, it may be time for credit counseling. Worry, lack of sleep, and debt collection calls can overwhelm anyone, making life miserable. Credit counseling is one option to dealing with such a crisis, and many consumers are thankful for such services which have led them out of financial quagmires. Reputable credit counselors are certified or trained in consumer finance issues by accredited institutions. The skilled credit counselor will know how to develop workable budgets and rein in spending for individuals, while advising on plans for long-term goals, such as retirement.

Choosing a credit counselor

Consumers can find a credit counselor through a variety of means, such as the telephone book, the Internet, word-of-mouth referrals, credit unions, local consumer protection agencies,  etc. Many nonprofit organizations offer credit counseling through military bases, housing authorities, and universities. The U.S. Cooperative Extension Service offers nonprofit credit counseling through some branches, and the U.S. Trustee Program has a list of credit counseling agencies which are approved to provide pre-bankruptcy counseling. Meeting with a credit counselor face to face is the most desirable circumstance to establish the rapport needed. But be aware that just because a credit counseling organization builds itself as nonprofit does not mean that it is necessarily free. Above all, the consumer needs to exercise caution because the field also contains dubious credit counselors, waiting to take advantage of stressed-out individuals.

The consumer should develop a list of potential counseling agencies to be considered. Once the consumer has contacted a credit counseling agency, the agency should send out free information on their services without requesting any details from the consumer about his or her financial situation. It is a red flag if any information is requested by an agency and that agency should be crossed off the list. At a counseling session, the consumer can expect to be advised on managing their finances and debts, and on developing a budget, with most sessions lasting an hour. Offerings of free educational materials and workshops are usually included.

The list of potential counseling agencies should be given a background check with the state’s Attorney General, the Better Business Bureau, and the local consumer protection agency. But be aware even though a counseling agency may not have any complaints filed against it, this is still not a guarantee that they are legitimate. The next step for the consumer after eliminating those that fail the background check is to interview the credit counseling agency or counselor in order to make a final selection.

Interviewing a credit counselor

Interviewing a credit counselor will help the consumer find the right one for his or her situation.  To weed out those who appear incompetent or inappropriate, the consumer needs to go to the interview prepared with questions, such as the following:

  • What are the counselor’s qualifications for credit counseling, and what is their educational background? Is the counselor certified or accredited? If they were trained and not certified or accredited, was it by a non-affiliated party outside the counseling agency?
  • Does the counselor have a state license?
  • Does the client sign a contract? If there is a contract, ask to have a copy of it. Be sure all verbal promises are written down.
  • What are the fees? Do they have a monthly plan?
  • What services do they provide? The consumer should find a credit counseling organization which offers a range of services.
  • Does the counseling agency offer free educational materials?
  • Do they offer workshops in managing different aspects of personal finance?
  • Do the counselors develop a budget for the client? A long-term budget for retirement?
  • Is the client’s information kept confidential?
  • How are the counselors paid? If they paid depending on what services the client has signed up for, the consumer should avoid that counseling agency. Also, the consumer should avoid agencies that require upfront fees or contributions.

Finding the right credit counselor will take some work and investigation on the part of the consumer, but the rewards of taking steps to solve financial problems are well worth it.

Reference:

1. Federal Trade Commission, Fiscal Fitness: Choosing a Credit Counselor, December 2005, http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm