Using the services of a credit counseling agency can help restore your financial balance. In addition, seeking advice from a credit counselor can help you feel less anxious about what may seem like a mountain of debt.
How to Find a Credit Counselor
To find a credit counselor:
- Review your financial situation, including details about your income and debts.
- Check the websites of the National Foundation for Credit Counseling and the American Association of Debt Management Organizations to find qualified non-profit counselors in your area.
- Inquire about any fees that the counseling agency may charge.
- Decide whether you want to enroll in a debt management plan, which is a debt repayment program managed by the credit counseling agency.
How Credit Counseling Works
Credit counseling agencies help people manage and repay their debts, teach them how to create and stick to a budget, and lead a healthier financial life. These agencies are usually non-profit organizations that employ qualified and certified counselors.
Counselors typically review the client’s options for dealing with debt, such as debt consolidation or bankruptcy.
In many cases, individuals working with a credit counseling agency are placed on what is known as a debt management plan.
Under a debt management plan, a client of the credit counseling agency makes a single payment monthly or per billing cycle to the agency. The agency then uses this amount to send monthly payments to the client’s creditors, such as credit card issuers. Although credit counselors do not arrange for their clients to repay less than they owe, counselors may negotiate with creditors to extend repayment terms, reduce interest rates, and suspend fees.
The agency may offer credit counseling services in person, over the phone, or online. It might be worthwhile for the counselor to schedule an initial session with the client in addition to follow-up sessions. The agency may also provide lessons on how to manage debt and spending.
You should keep in mind that the credit counseling agency may charge fees for debt management services.
When is it Good to Get Credit Counseling?
It may be a good idea to get credit counseling if you are:
- Having difficulty making monthly payments on credit cards or other debts.
- Only making the minimum monthly payments on credit cards and other debts.
- Using more than 50% of your available credit.
- Having maxed out your credit cards.
- Regularly dipping into your retirement or savings accounts to cover everyday expenses.
- Wanting to resolve debt issues quickly.
- Seeking professional help to achieve your financial goals.
- Unsure about how to organize your income and expenses.
Selecting a Credit Counselor and Applying for Credit Counseling
When selecting a credit counselor:
- Ask for recommendations from family and friends.
- Check the National Foundation for Credit Counseling or American Association of Debt Management Organizations’ websites to find reputable non-profit agencies in your area.
- Research the Better Business Bureau’s records for any agency you are considering.
- Also check with your state’s Attorney General’s office or consumer protection agency.
- Inquire about the counseling agency’s fees for debt management program enrollment. Monthly fees can be around $80, while one-time setup fees can range from $50 to $75.
- Understand the services the agency provides. This information and all services other than debt management should be provided at no cost.
- Explore the qualifications of the credit counselors working at the agency. Do they have the necessary credits or certifications?
- Be wary of scams, such as companies promising to remove some or all negative information from your credit report.
Submit
Application for Credit Counseling
When applying for credit counseling, be prepared to do the following:
- Undergo an initial interview.
- Provide personal information, including name, address, and contact information.
- Review your credit report.
- Provide proof of income, such as a recent paycheck stub.
- Provide a list of current debts.
- Provide an overview of monthly expenses.
- Provide an overview of your credit cards, including balances, interest rates, and due dates.
Top Credit Counseling Agencies
Company Services Available Fees for Credit Counseling and Debt Management Plans
- Cambridge Credit Counseling: Credit counseling, debt consolidation, student loan counseling, bankruptcy counseling, housing counseling, and debt management plans. Free credit counseling. Initial setup fee: $40. Monthly fee: average $30.
- Money Management International: Credit counseling, housing counseling, student loan counseling, bankruptcy counseling, disaster recovery counseling, and more. Free credit counseling. Average initial setup fee: $33. Monthly fee: average $25.
- InCharge Debt Solutions: Credit counseling, housing counseling, bankruptcy counseling, and debt management plans. Free credit counseling. Initial setup fee: $75 (varies by state). Monthly fee: average $33.
- GreenPath Financial Wellness: Credit counseling, bankruptcy support, student loan counseling, housing counseling, and debt management plans. Free credit counseling. Initial setup fee: $0 to $50. Monthly fee: $0 to $75.
- APPRISE: Credit counseling, student loan education, bankruptcy counseling, and debt management plans. Initial setup fee: $45. Monthly fee: $45.
- American Consumer Credit Counseling: Credit counseling, housing counseling, bankruptcy counseling, and debt management plans. Free credit counseling. Initial setup fee: $39 (varies by state). Monthly fee: $7 per account, capped at $70.
Alternatives to Credit Counseling
Credit counseling is not the only way to achieve financial stability. Alternatives you may want to consider include:
- Creating and sticking to a budget.
- Negotiating directly with your creditors for relief, such as reduced interest rates or lower monthly payments.
- Consolidating debt using a debt consolidation loan, home equity loan, or balance transfer credit card.
- Working with a for-profit debt settlement company to settle some or all of your debts. This option may require you to pay high fees and can negatively impact your credit score.
- Filing for bankruptcy. Depending on the type of bankruptcy you pursue, you may be able to eliminate your debts or create a repayment plan. Bankruptcy can affect your credit report for up to 10 years, resulting in long-term damage to your credit score.
Frequently Asked Questions
Are credit counselors free?
Non-profit credit counseling agencies offer free credit counseling. However, if you enroll in a debt management plan through a credit counseling agency, you may have to pay upfront fees and monthly fees.
Is a credit counselor the same as a debt settlement service?
A credit counselor is not the same as a debt settlement service. Typically, credit counseling agencies are non-profit organizations that offer free workshops and educational materials. A credit counselor may charge a relatively small fee if you enroll in a debt management plan. For-profit debt settlement companies negotiate with creditors or debt collectors to settle your debts. Debt settlement services typically charge fees of 15% to 25% of the amount of debt they are asked to settle.
How does a credit counselor help you deal with debt?
A credit counselor provides
Credit counselors provide advice on how to deal with debt and manage money. In some cases, a credit counselor may enroll someone in a debt management plan. This plan can give the person more time to pay off debts at reduced interest rates and without fees.
Will credit counseling affect your credit score?
Simply looking for credit counseling agency services will not affect your credit score. However, if you are enrolled in a debt management plan, you may see your credit score drop initially.
Source: https://www.thebalancemoney.com/how-to-find-a-credit-counselor-7509406
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