What is credit counseling?
Credit counseling organizations can advise you on your money and debts, help you with a budget, and offer money management workshops.
Credit counseling organizations are usually non-profit organizations. Typically, their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your financial situation with you and help you develop a personalized plan to solve your money problems. Here are some examples of what credit counselors might do:
- Advise you on managing your money and debts
- Help you develop a budget
- Help you get a copy of your credit report and scores
- May offer free educational materials and workshops
- Organize a “debt management plan” to pay down your debts
Tip: If you are having trouble making payments on your debts, a credit counselor may be able to help you with advice or by organizing a “debt management plan” for all your debts. Typically, under a debt management plan you make a single payment to the credit counseling organization each month or pay period and the credit counseling organization makes monthly payments to each of your creditors. Under debt management plans, credit counselors usually do not negotiate any reduction in the amounts you owe–instead, they can lower your overall monthly payment. They do so by negotiating extensions of the periods over which you can repay a loan and by asking creditors to lower the interest rates and waive certain fees.
How do I find a credit counselor?
Most credit counselors offer services through in-person meetings at local offices, the internet, or on the telephone. To get started, you can try the Financial Counseling Association of America, on their website or by phone at (800) 450-1794, or the National Foundation for Credit Counseling, on their website or by phone at (800) 388-2227.
Once you’ve developed a list of potential credit counseling organizations, check them out with your state attorney general and state consumer protection agency . Ask the counselors for free information about their services.
How do I choose which credit counselor is right for me?
A reputable credit counseling organization should be willing to send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a service doesn’t do that, consider this a red flag and go elsewhere for help.
Here are some questions to ask to help you find the best credit counseling service for you:
What services do you offer? Look for an organization that offers a range of services, including budget counseling and classes for managing spending and debt. Avoid organizations that push a debt management plan as your only option before they have spent a significant amount of time analyzing your financial situation.
How is credit counseling offered? Services may be offered in-person, by phone, or online. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
Do you offer free educational materials? Avoid organizations that charge for information.
What are your fees? Are there set-up or monthly fees? Get a specific price quote in writing. Although most credit counseling organizations are non-profits, credit counselors may charge fees for some of their services that they take out of the payments you make to them.
What 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.
Will I have a formal written agreement or contract with you? Don't sign anything without reading it first. Make sure all verbal promises are also in writing. As with any contract, don’t sign anything that you don’t understand.
What are the counselor’s qualifications? Is the organization or counselor accredited or certified? What are the qualifications of its credit counselors? Find out about what training or professional certifications the counselor has received.
How are your employees paid? Are the employees 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 this a red flag and go elsewhere.