Are you struggling with your debts to the point where it just seems hopeless — that you’ll never be able to get debt free? One option that could help you achieve debt relief is to go to a credit-counseling agency. There are many of these agencies available online and there may even be ones near where you live. Since you’ll be basically entrusting your finances to that agency it’s important that you choose a good one.
What to expect
A good consumer credit-counseling agency will discuss your finances and your debts. It will work with you to create a budget and provide you with free workshops and educational materials that could help you do better in the future. Its counselors will be trained and certified…. Your counselor will discuss your entire financial situation and help you develop a customized plan for dealing with your financial problems. You can figure that your first counseling session will take from 45 minutes to an hour.
A good first step
A good place to begin is to make a list of counseling agencies that you might want to work with. Then check out each of them with your state’s attorney general and your city’s consumer protection agency. This will tell you if complaints have been filed against any of the agencies you’ve chosen. However, just because an agency hasn’t received any complaints doesn’t necessarily mean that it’s legitimate. The United States Trustee Program has a list of credit counseling agencies it has approved for pre-bankruptcy counseling. These are counseling agencies you can definitely trust.
Finding the best agency for you
Just because the credit-counseling agency is legitimate and reputable doesn’t necessarily mean it would be best for you. There are some questions you should ask to determine whether the agency would be a good fit.
The first is to ask what services the agency offers. The best organizations offer a wide range of services including debt management classes and budget counseling and If the organization pushes a debt management plan as your only option before spending a considerable of amount of time analyzing your finances you should view that is a big red flag.
A second important question to ask is do you offer any educational materials for free. If the agency wants to charge for its materials you should definitely avoid it. Of course, you’ll want to ask about its fees. Will there be a fee for setting up your account and a monthly maintenance fee? Be sure to get a detailed price quote.
What if you can’t afford its fees?
Be sure to ask the agency what will happen if you can’t afford its fees. If it says it can’t help unless you can pay you will need to look someplace else for help. You should also try to choose a credit-counseling agency that will help you develop a plan for avoiding financial problems in the future. Ask what are the qualifications of its counselors. They should be certified or accredited or by an independent organization.
Finally, ask if it has a formal contract or written agreement. If so, don’t sign anything without reading it very carefully first. Remember, again, you’re trusting your finances to that agency and to that counselor.
You may be offered a debt management plan
If your debt problems are so severe that there is just no way you can repay them through budgeting your counselor may suggest you enroll in a debt management plan (DMP). If this is the case you will deposit money with the agency each month and it will use your deposit to pay off your unsecured debts such as your loans, credit card bills and medical bills. This will be according to a payment schedule that you develop in conjunction with your counselor and your creditors. It’s possible that creditors will agree to reduce your interest rates waive certain fees. Before you enroll in your DMP is good to check with all of your creditors to make sure that they will accept the kind of concessions that your credit counseling agency describes to you.
Once you sign off on your DMP you will need to make regular, timely payments to the credit counseling agency. It will likely take you somewhere between three and five years to complete your DMP. Be sure to ask your counselor how long he or she expects it will take you to complete yours. Understand that it’s quite possible you will be required to close all of your lines of credit and not take on any new debt until you do complete your plan.
Is a DMP be right for you?
Before you agree to a debt management plan it’s important to think seriously about whether or not it would be right for you. You might be in the program for as many as five years meaning that you will be required to make your payments regularly and on time for 60 months. As noted above, you may also be required to give up all of your credit cards and not take on any new debt until you complete your plan. This can require a good deal of self-discipline and you need to ask yourself if you would be up to it. Nearly half the people who sign up for a debt management plan never complete there’s and these are the reasons why.