Consumers struggling with debt often find their options to be quite limited. They may try to manage the debt on their own by setting up a repayment schedule with their lenders, or they may turn to a company that specializes in debt consolidation or settlement and if they've reached their breaking point they might even declare bankruptcy. While all of these are debt relief options, some carry a heavier burden than others. One great solution, less damaging than bankruptcy but more effective than contacting your creditors directly, is a credit counseling advice agency.
What Is Credit Counseling?
Credit counseling is a service which aids in a few critical money management areas. A certified counselor can help you establish and carry out a debt management plan (DMP), negotiate on your behalf with creditors to lower the interest rates you're paying or monthly minimums as well as provide you with the tools to better control your spending habits in the future.
You've probably seen advertisements for these types of agencies online, on television, or even in the mail but what's important to remember is that not all counselors are created equal. Fortunately, we're here to help you weed out the scammers from the specialists.
Identify the Red Flags
There are a few red flags that can help you immediately identify whether an agency is just in it to make a quick buck or seriously committed to your financial freedom.
- Over-The-Top Guarantees-Any company that promises to rid your credit history of blemishes for an up-front fee, no questions asked should be an immediate red flag. If it sounds too good to be true, it just might be. There are in fact no absolute guarantees when it comes to credit repair or credit counseling because the results are largely dependent on your creditors and their willingness to work with you.
- Hidden Fees and Fine Print-Don't make the mistake of signing an agreement without reading the fine print or being informed of all fees upfront. Ask for a copy of the terms of service and keep the agency accountable for their end of the bargain. If they agree to negotiate with creditors on your behalf, request hard copies of all communications.
- Non-Profit Claims-Generally, non-profit credit counseling agencies are more reputable than their for-profit counterparts because they're required to adhere to more strict guidelines and regulations. One way to identify whether an organization falls into the field of non-profits is to check its accreditations and certifications. The Association of Independent Consumer Credit Counseling Agencies and National Foundation for Credit Counseling are two consumer advocacy groups who keep a close eye on the organizations in operation. Think about it this way, would you allow a surgeon who isn't board certified to operate on you? Probably not. Well the same goes for your finances. Don't trust your money with an individual who hasn't proven their competency within the field.
- Confirm All Payments-Some counselors allow you to send in one lump payment which is then distributed to your creditors on your behalf. If you opt for this service, you need to stay on top of the payments and confirm that they've been received by your creditors. Again, get written confirmation of all communication and funds paid out.
Keep the aforementioned points in mind when weighing the pros and cons of each provider and remember if you have any suspicion regarding an agency's legitimacy, do your research upfront!