What exactly is credit counseling?
According to the Federal Trade Commission (FTC), credit counseling organizations provide advice on managing your money and debts, help you come up with a budget, and give free educational materials and workshops. You can find peace of mind knowing that the counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. In your meetings, the counselor will discuss your whole financial situation to better help you come up with a customized plan to manage your money problems. The first counseling meeting will last around an hour, with an offer of follow-up meetings [1]. The FTC and the National Foundation for Credit Counseling suggest using a non-profit agency, which offer their services for free or a small charge [2]. The FTC also recommends keeping these things in mind when considering credit counseling services:
- The most trustworthy counseling comes from non-profit organizations that operate out of local offices, online, or on the phone.
- Be advised that even if the organization is classified as being “non-profit,” it doesn't always mean that the counseling is free, affordable, or valid.
- In-person counseling is often the most helpful; these programs can be found at most universities, military bases, housing authorities, and branches of the U.S. Cooperative Extension Service.
- Central Bank, as well as your local consumer protection agency, the United States Trustee Program, and your family and friends can be integral resources in providing information and referrals [1].
How do I decide on a credit counseling organization?
If an organization charges large fees (which they sometimes hide), asks for “voluntary” contributions, suggests a debt management plan (DMP) as your only option before spending more time looking at your situation, doesn't send you free information about services unless you give them information about your financial situation, then seek out a different organization. These are red flags that shouldn't be ignored [1]. The FTC recommends asking different agencies these questions in order to pick the one that suits your needs best:
- What services do you offer?
- Make sure they provide budget counseling and savings and debt management classes.
- Along with helping me with my current problems, will you help me come up with a plan to avoid these problems later on? Are there fees?
- These could be set-up and/or monthly fees. Get their quote in writing.
- Will I have a contract with you?
- Make sure all verbal promises are in writing.
- How are your counselors trained and paid?
- It's best for counselors to be certified by the NFCC and not be paid on commission.
- How is my personal information kept safe?
By keeping these points in mind, you'll be in a much better place to move forward with credit counseling.
Sources:
[1] Choosing a Credit Counselor, Federal Trade Commission
[2] Credit Counseling, Debt.org
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