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7 Questions You Absolutely Must Ask Any Credit Counseling Agency

 

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.

young business man on the phone, isolated on white

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.

8 Important Questions About A Debt Management Plan

If you’ve been struggling to repay your debts you may have heard the term debt management or debt management plan. If you’re wondering what is a debt management plan (DMP) the simple answer is that it’s a systematic way to pay off your debts through monthly payments to a credit counseling agency that then distributes the money to your creditors. If you enroll in a DMP you may see your interest rates reduced and your finance charges waived. It typically takes from 36 to 60 months to complete one of these plans. A DMP serves the dual role of helping you pay off your debts while getting your creditors the money you owe them.

Would a debt management plan be the best way for you to deal with your debts? It could be but before you contact a credit-counseling agency, it’s important to know the answers to these eight questions?

1. What exactly is a debt management plan?

A DMP establishes a schedule for repaying your debts. It involves an agreement wherein you voluntarily deposit a set amount of money with a credit-counseling agency each month. In turn, the agency distributes the money to your creditors until all your debts have been paid off. When you complete your DMP the credit counseling agency will then help you reestablish credit. In the meantime when any creditors call, you can tell them to stop contacting you and contact your credit-counseling agency instead.

2. How would I know if I’m a good candidate for a DMP?

When you first contact a credit-counseling agency a counselor will go over your finances with you. This initial session will likely take 45 minutes to an hour. He or she may then suggest a budget designed to help you pay off your debts. On the other hand if your counselor determines that your debt problem is so serious that a budget couldn’t fix it you’ll be offered a DMP.

3. Will a DMP affect my credit?

If you get a DMP your participation may change information on your credit reports. If your reports show that you have been paying creditors as you agreed to in the past then a DMP could signal to a potential landlord, creditor or employer that you are experiencing financial problems. Plus, some of your creditors may report that you’re not paying them as you had initially agreed to even though they accepted your DMP.

4. Will I be able to continue using my credit cards?

As a general rule your creditors will suspend or close your credit lines or you may be required to close some of them yourself. You will also not be allowed to take on any new lines of credit until you complete your DMP. The reason for this is simple. If you take on new debt while in a DMP you’re basically defeating the whole purpose of the plan – to get you debt free.

5. If I enroll in a DMP will my creditors stop charging me interest?

Some of your creditors may stop charging you interest while others won’t. Your credit counselor will be able to tell you which is which. The good news is that the majority of your creditors may not stop charging you interest but they will lower your interest rates. They may also agree to longer terms or how much time you will have to pay off your debts. When you combine lower interest rates with longer terms you should end up with a much lower monthly payment than the sum of the payments you’re currently making.

6. Can I choose which of my debts will be in my DMP?

The answer to this is that it’s best to include all of your debts in your DMP. That’s just the most equitable and effective way to treat them. If you were to choose to keep some of your debts out of your DMP you’d end up making payments to both the credit counseling agency and some of your creditors so that your debts won’t have been consolidated, which is one of the biggest benefits of a DMP.

7. Are there downsides to a DMP?

A DMP can be a very effective way to get your debts paid off but it does have its negatives. As mentioned above it can take as long as five years to complete a DMP during which time you won’t be allowed to take on any new lines of credit – which requires a lot of self-discipline. Nearly 50% of those people that sign up for a DMP never complete theirs and this is why.

8. Is there another good option for getting my debts paid off?

A second good option for getting debts paid off is debt settlement. This is where you contract with a settlement firm to pay off your debts for you. The way this works is that the settlement company negotiates with your creditors to get your debts paid off for less than their balances by offering lump sums to settle them. While the settlement company is negotiating with your creditors you will no longer pay them. Instead you will send a set amount to the settlement company each month. Good debt settlement companies are often able to to get debts cut by nearly 50%. In addition, contracting with a debt settlement company frees you from the anxiety of having to deal with your creditors. To be a good candidate for debt settlement you should probably owe more than $10,000 and be at least four months behind on your bills. But if this is the case debt settlement could be your best option.

Understanding The Pros And Cons Of Credit Counseling

If you’re sick and tired of struggling with your debts there are several different solutions. For example, depending on how creditworthy you are, you might be able to get a debt consolidation loan. If all or most all of your debts are credit card debts you could consider doing a balance transfer. Or you could do as many people have done and choose consumer credit counseling.

How consumer credit counseling works

When you go to a consumer credit counseling agency you will be assigned a counselor who will review your finances and help you develop a budget that would allow you get your debts under control. If you are seriously in debt to the point where a budget isn’t the answer your counselor will work with you to create a debt management plan (DMP) to get you back on track. If you get one of these plans you would send one check a month to the credit-counseling agency, which would then distribute the money to your creditors until they have been paid back in full. Your counselor may also be able to get you a lower interest rate and better terms or more time to pay off your debts.

What you need to know about credit counseling

The first thing to understand about credit counseling is that not all agencies are equal. It’s important to be very careful about who you work with. Your best choice would be a nonprofit credit-counseling agency that belongs to the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). You can trust an agency that belongs to one of these organizations because it must pass rigorous standards as set forth by the Council on Accreditation or some other approved third party. In addition, the counselors who work for these agencies must pass a comprehensive certification program. It’s also important to make sure that the agency is well organized, will send your payments and statements on time and provide you with consumer education materials and support.

All debt management plans are the same

Regardless of the organization you choose it won’t get preferential treatment from any of the financial institutions. While the credit counseling agencies and their employees may vary a bit the plans are structured essentially the same way. Your counselor will determine what you’ll need to pay your creditors in full in three to five years. As a general rule your payment will be around 2.5% of your total debt though if you’re having a really serious financial hardship there may be some wriggle room. You’re allowed to opt out of your DMP any time you choose and you can, of course, pay more each month and get out of debt quicker.

The pros of consumer credit counseling

The biggest pro of credit counseling is that it would relieve you of the burden of struggling with your debts that is making your life miserable. Instead of having to juggle your bills, feeling each month that you’re falling further and further behind, you would know that you have your debts under control and need to make just one payment a month. And you would know exactly when you would be debt free. In addition, credit counseling doesn’t require you to take on new debt as would a personal bank loan. In addition, you would have a “partner” in the form of your debt counselor who would help you stay on your plan until you have completed it.

The cons of credit counseling

Consumer credit counseling doesn’t work for everyone. For you to be a good candidate the biggest share of your debts must be unsecured debts such as credit card debts, personal loans, lines of credit, department store cards and other types of revolving credit. If the bulk of your debt is taxes owed, automobile loans, child support or student loan debts then credit counseling isn’t for you. Second, you must get a monthly payment that you can afford and be prepared to stick to it. In other words, you must be confident that you can continue to pay on your plan for years and not just a few months. You also need to have enough money left over after you make your payments to cover your essential expenses as well as some savings.

A debt management plan will require you to close all of your accounts and not open any new ones until you’re debt free. This can come as a bit of a shock if you’re used to just whipping out that little piece of plastic to pay for things. But this just makes sense. If you were to continue charging things while you’re also paying on your DMP, you’d be just spinning your wheels. However, you may be allowed to keep one credit card open to use in case of an emergency but it will be a one with a low balance and that you could use anywhere.

Where To Go For Free Help With Your Debt

Don’t worry if you’re drowning in debt because there are some free lifesavers available – if you know where to look. Some of these are even available online so you don’t even have to leave home to get the help you need. On the other hand there are some services where you’ll have to get out of your easy chair and into your car but you’d be able to get help from an actual living debt counselor.

Free help online

Money Management International offers free credit and debt counseling. It’s easy to schedule a free credit counseling session, as all that’s required is to provide your name, email address, ZIP Code, city and state. If you prefer to talk to a real person, you could call 866.531.3442 24 hours a day, seven days a week. The counseling you will receive is free with no pressure to buy anything. However, if you decide to enroll in a debt management plan (DMP) there will be a one-time setup fee and a small monthly fee to administer the program. How long are your counseling session will last depends on a number of different factors but a complete credit and budget counseling session typically lasts 45-60 minutes. In addition to credit counseling, Money Management International offers:

• Bankruptcy Counseling
• Foreclosure Prevention Counseling
• Debt Management Assistance
• Reverse Mortgage Counseling
• Bankruptcy Education

The US Government

The US government offers a lot of good information for coping with debt. It’s website has information on self-help, debt relief services, debt consolidation and bankruptcy. As an example of this, the section on self-help includes information on how to develop a budget, contacting your creditors, how to deal with debt collectors, managing your home and auto loans and more.

InCharge

This is a non-profit organization that offers free consultations, education and budget counseling. It has certified credit counselors that are ready and willing to help you get on the right path out of debt. In addition, it’s website includes a number of helpful articles and resources that make managing debt much easier. The website advertises that it could help you…

• Pay off your debt faster
• Stop collection calls
• Consolidate credit bills into one easy monthly payment
• Eliminate over-limit charges and late fees
• Create a realistic budget and a financial plan that you could easily follow.

With InCharge you can fill out a form on its website and get an immediate solution to your debt problem or call 888-241-2163 to talk with one of the company’s certified credit counselors.

Debt.org

This website promotes itself as America’s Debt Help Organization. It offers information for managing your debt, understanding your debt, bankruptcy and student loan forgiveness, as well as tips and tools for getting out of debt, a credit score grader and how student loan debt adds up. It’s also possible to call Debt.org at (888) 505-2105 for immediate help.

RethinkDebt.org

This company is also a nonprofit. It offers information on credit scores, credit reports, budgeting and more. Its client support department is open Monday through Thursday from 8 AM to 8 PM EST and on Friday from 8 AM to 5 PM. It provides a number of different financial education classes and workshops. The free counseling offered by RethinkDebt includes:

• Housing
• Foreclosure prevention
• The pros and cons of reverse mortgages
• Paying off debts
• Financial education
• Debt management programs and debt consolidation

You can call (888) 724-2227 to get a free debt evaluation to learn if a debt management plan would be your best solution. If so, you would be required to pay a small set up fee and a monthly maintenance fee until you become debt free.

Person-to-person help

If you think you would be more comfortable working with a person with whom you could meet from time to time, there’s probably a credit-counseling agency near your home. The US Department of Justice offers a list of approved credit counseling agencies by state with addresses and telephone numbers.

The site Need Help Paying Bills also offers a list of non-profit credit counseling agencies by state. GreenPath, Inc. is both a national and local credit counseling organization in that it has offices in all 50 states. If there is an office near where you live you could make an appointment to meet with one of its trained counselors for help with personal budgeting, information on debt consolidation via debt management programs, home equity loans and mortgage assistance.

One of the oldest and largest non-profit credit counseling agencies is Consumer Credit Counseling Services. It has offices in most major cities and is part of Money Management International, which is the biggest nonprofit, full-service credit-counseling agency in the US. It provides credit counseling, community-wide educational programs, financial guidance, debt management assistance, and bankruptcy counseling and educational services. You can access it services over the phone, on the Internet or via in-person counseling sessions.

Compare Debt Management Plan Costs

When you are thinking about signing up with a debt management plan you need to consider how much it will cost you to proceed with that plan. There is no point thinking about a debt management plan if you cannot afford the upfront or monthly cost right?

Compare Debt Management Plan Costs

So let us compare the costs of credit counseling, debt consolidation, do it yourself debt settlement, hiring a debt settlement firm and filing chapter 7 and chapter 13 bankruptcy as these are the most popular ways people use to resolve their debt problems.

Non profit consumer credit counseling may or may not charge an upfront fee or signup fee. Usually this is around $50 or less. And then you have a monthly service fee for the agency to manage your payment and disburse it to your creditors. This usually runs $50 a month or less. There are several that have a service fee at $25 a month.debt management plan costs

Debt consolidation comes in many flavors so there is one way to show you all the possible costs unfortunately. You can choose a home equity line of credit. You can consolidate without using a new debt consolidation loan but just working with  a third party that will manage your bill payments for you (CareOneCredit does this).

Another way to consolidate is to get a new loan and transfer all your balances to the new card with a lower interest rate. Many of the loan options depend on how good or bad your credit is. If you have good credit you can get a good interest rate and save money possibly unless you start racking up more debt. If you have bad credit you may not get approved for a home equity line of credit or debt consolidation loan at all.

As an example if you have $40,000 in credit card debt at a 19% APR and you were able to get a loan at 10% for 48 months your payment would drop from $1196 a month to $1015 a month. So you possibly save almost $200 a month if you can stick to a rigid 48 month repayment plan and do not charge anything else.

Taking a look at the costs of do it yourself debt settlement, there is a course called Zipdebt which offers coaching through the entire debt settlement process along with debt settlement letter reviews. You can get 6 months of coaching and document review for $397 plus S&H and there are no other costs. You can learn how to settle your debts for as low as 20 cents on the dollar in 6 to 18 months.

Hiring a debt settlement firm will not cost you anything upfront anymore thanks to the FTC but you will have to pay at the end when they are able to settle your debts with the creditors. A debt settlement firm will ask for 10 to 25% of the amount saved through the debt negotiation process. So for example you have $10,000 in credit card debt and they get a settlement of 50%. They saved you $5000 and will ask for $500 to $1250 as their success fee. This is just an example. But this is now how debt settlement companies work – on a contingency fee basis. They only get paid when they are able to successfully settle your credit cards.

A debt expert from UK debt management company Gregory Pennington commented that no-one should enter a debt management plan unless they feel the fees are reasonable.

The costs of bankruptcy filings have gone up as more and more people have been forced to go down this road. The cost of just filing for chapter 7 or chapter 13 bankruptcy is around $300. Then you have to add in the attorney fees because you are strongly encouraged to hire a bankruptcy attorney to file. The average attorney cost for chapter 7 is $1000 so that gives you about $1300 for chapter 7.

The average attorney cost for chapter 13 is $2500 so that gives you about $2800 for chapter 13.

So now you have a quick rundown of what it may cost for the popular debt management plans you may be considering. You need to factor these costs into your debt calculations when you decide on how to want to proceed to take care of your debts.