Five Things You Need to Know about Credit Counseling

/ BY / Credit 101

If you're having trouble keeping up with payments on your credit cards and other bills, a credit counseling agency may help you get your finances back in order. Here are some facts to consider when you’re making a decision about whether or not credit counseling is a good solution for you.

  1. Going to a credit counselor doesn’t hurt your credit score
    If you’re worried that seeking out the services of a credit counseling agency will take points off your credit score, relax. Credit counselors don’t report to the credit bureaus. In fact, many people see an improvement in their scores after they’ve worked with a credit counselor to get their debt under control.

  2. Credit counseling is affordable.
    Think you can’t afford to pay a credit counselor when you’re facing so many other bills? Many credit counselors offer services that are low-cost or even free, according to the National Foundation for Credit Counseling. One of its member standards is that no service can be denied because someone is unable to pay, so fees can be waived if there is a true financial hardship.

    The FTC advises consumers to get a list—in writing--of all costs involved in counseling before they agree to work with any agency. These can include set up fees and monthly fees. Be wary of any company that’s trying to charge you for educational pamphlets, brochures, workbooks, etc. Such materials should be available at no charge to you.

    Another tip from the FTC: ask how an agency’s employees are compensated. If they receive commission based on the number and type of services that they sell, that’s not an agency that you want to deal with.

  3. Some credit counselors are better than others
    According to the Federal Trade Commission website, most reputable credit counselors are non-profit, but that doesn’t mean that all non-profit credit counselors are free, affordable or even reputable. To narrow your search, start with the list of approved credit counseling agencies from the U.S. Department of Justice. After you’ve identified a few possibilities in your area, check the Better Business Bureau or with your state’s attorney general’s office or consumer affairs division to see if there are outstanding complaints against an agency you’re considering.

  4. Credit counseling agencies can make a difference.
    According to the NFCC, the goal of a credit counselor should be to provide both short-term and long-term solutions for consumers. You should receive a written action plan which provides concrete steps that address immediate concerns and lay the groundwork for a financially stable future.

    Your credit counselor may recommend a Debt Management Plan. Under a DMP, the counselor negotiates with the creditor for a lower monthly payments, interest rates, late fees or over-limit fees to provide immediate relief and a way to get out of debt long term.

    While it does take effort to follow a plan devised by you and the credit counselor, it’s worth the effort. A recent NFCC survey revealed that many people believe that bankruptcy or debt settlement plans are e easier to follow, but the NFCC points out that both of those actions have longer-term consequences. It may be that you have to go that route, but make sure that you explore all options and understand what their impact on your credit record will be over time.

  5. Don’t wait until it’s too late.
    If you’re having trouble paying bills, get help before your finances spin too far out of control. “When experiencing financial difficulties, it is important to recognize the problem, and then promptly contact a professional credit counseling agency,” said Gail Cunningham, spokesperson for the NFCC. “There is no benefit to delaying action. As a matter of fact, delay usually makes matters worse.”

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. CreditCardXpo.com recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.