One of the best ways to pay off debts is by going to a consumer credit counseling agency for help. If you choose a reputable non-profit agency it will cost you practically nothing to have your financial situation analyzed.
However, the key here is to pick a reputable credit counseling agency. To do so you will need to ask it these seven questions.
What are your services?
The best credit counseling agencies offer a wide variety of services, including budget counseling, classes in debt management and help with saving money. They also have counselors that are licensed in consumer credit, debt management and budgeting. Your counselor should discuss your total financial situation with you and then, if appropriate, offer you a debt management plan that will get your debts paid off and avoid other financial problems going forward. Beware of any agency that tells you that your only option is a debt management plan before its representative has thoroughly analyzed your financial situation.
What free information do you offer?
Stay totally away from any credit counseling organization that charges for information about its services. No reputable credit counseling agency does this.
Are you licensed in my state?
A number of states require credit counseling organizations to become licensed before they are allowed to offer debt management plans, credit counseling and other such services. Make sure that you don’t hire an organization that has not fulfilled your state’s requirements.
Will you provide me with a formal written agreement or contract?
Never agree to participate in a DMP over the phone. Get all agreements in writing. If you are offered a DMP be sure to read it very carefully before you sign it. If you feel pressured to agree to do something immediately, that’s a red flag. It would be best to stop talking to that organization and begin looking for another one.
What are your counselors’ qualifications?
Ask if the agency’s counselors are certified or accredited by an independent, outside company. If so, what was the organization that certified them? It’s important to choose an organization whose counselors were certified not by the agency itself but by an independent, outside organization.
What are your credit counseling fees?
Reputable credit counseling agencies generally charge a minimal fee to set up your account of maybe $25. It may also charge a monthly maintenance fee of $10 or so. If you’re quoted fees higher than this, then you may want to look for another credit counseling agency.
How will you keep my personal information secure?
Credit counseling organizations are like banks in that they will have a lot of your personal information including your name, phone number, address and, of course, your financial information. It’s important that they keep this information secure. Ask what safeguards it has in place to guard your information and prevent it from being misused.
What to expect with a DMP
If you and your counselor agree that your best option would be a DMP you will begin depositing money with the credit counseling agency each month. It will use this money to pay your lenders based on the payment schedule it negotiated with them Your creditors may agree to lower your interest rates or waive certain fees because you’re now on a DMP, which should mean lower monthly payments.
Three things you must do
There are three things you must do once your creditors have accepted your DMP. First, it’s critical that you make all of your monthly payments on time. Second, you will receive monthly statements you must read carefully so that you’ll know your creditors are being paid per your DMP. And third, if for some reason you won’t be able to make a scheduled payment you need to immediately contact your credit counseling agency. You also need to contacted immediately if you find your creditors are not being paid.
Why this is important
If you do not make payments on your DMP’s schedule, or if you find that your creditors are not being paid, you may lose whatever progress you’ve made in repaying your debt or the benefits of being in a DMP. If your payments are late, you probably won’t be able to have your accounts “re-aged” again, your credit report will have “late” marks and you’ll likely rack up late fees that will lead to even more debt.