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How to shop for credit counseling firms
Do you need help with your financial situation? Maybe you are feeling overwhelmed with debt, tired of living paycheck to paycheck, or simply want to learn how to budget more effectively. In these cases and many more, credit counselors are standing by, ready to help. However, before you hire an agency, there are a few things you should know. First, learn what credit counseling is and how to find a legitimate counselor you can trust.
What is credit counseling?
Credit counseling is a service designed to help you get your finances in order and improve your credit. It is provided by organizations, often nonprofits, which employ counselors who are typically certified and trained in debt management, budgeting, and consumer credit.
How does credit counseling work?
The credit counseling process involves a review of your finances (which includes your debts, assets, income, monthly expenses, and credit reports). The counselor helps you understand your options and set up an action plan. Then, the counselor offers support while you implement the plan.
Each counseling organization is different but many offer free educational content such as blogs, videos, newsletters, articles, online classes, and recommended texts. Additionally, they may offer tools to help you manage your money like calculators, worksheets, etc.
Credit counseling costs and services
Basic credit counseling is offered for free by many organizations. However, it is often just one of the many services available. Many organizations branch out to offer specialized services, tools, classes, plans, and resources that may or may not come at a cost.
One of the most common paid offerings is a debt management plan (DMP). DMPs are for those who need or want assistance eliminating their debt. With a DMP, the credit counseling agency analyzes which of your debts qualify for the plan. Qualifying debts are lumped together, the accounts are frozen, and debtors make a single payment each month to the credit counselor. The payment is used to pay the creditors. Credit counseling agencies do not usually reduce the amounts owed but do try to help lower the monthly payment amount by extending repayment terms, lowering interest rates, and getting fee waivers.
In summary, credit counseling can encompass both paid and free help with getting your finances under control. The services range from basic credit counseling to paid debt management plans in which the organization acts on your behalf to manage your debt.
Are you a good candidate for credit counseling?
If you are struggling with your finances, credit counseling may be able to help. While you might not need to go as far as a full-blown debt management plan, you can start by getting free advice on how to improve your situation. Plus, you can gain access to tools and resources that can help you to practice better habits.
Signs you can benefit from credit counseling:
- No money in savings
- Savings which is less than the equivalent of six months of expenses
- No retirement plan
- Maxed out credit cards
- Running out of money between paychecks
- Feeling like your finances are out of control
- No emergency fund
Credit counselors help you formulate a plan to resolve the above financial problems. But how do you find a company you can trust?
How to compare credit counseling companies
When looking for a credit counselor, you need to do so with caution. The industry is full of nonprofits looking to help, for-profits looking to help and earn, and scammers under the guise of both.
How to choose a credit counselor
There are hundreds of credit counseling companies available, so choosing the right one for you can be overwhelming. Here are 9 steps that can help you choose the best option for you.
- Go with an accredited agency.
- Ask if they're licensed.
- Check their reviews.
- Ask what services they provide.
- Get a list of rates.
- Check their qualifications.
- Data security protocols.
- Get details on their DMP.
- Examine their benefits.
Ask the following questions to ensure you find a credit counseling agency you can trust.
What services do you offer?
Ask the credit counseling agency for a list of their service offerings. Do they simply offer help with managing personal finances or do they also offer help in specialized areas?
Common services include:
- General counseling for finances, credit, and budget
- Bankruptcy guidance
- Reverse mortgage help
- First-time homebuyer assistance
- Student loan help
- Small business owner guidance
- Mortgage assistance
- Formal debt management plans
- Savings and debt management classes
Determine your needs and then find the organizations which provide the services to meet them. A wide range of services is a good sign.
How much does it cost?
Fees for credit counseling services vary widely and may include:
Ask for a firm quote and a breakdown of an agency's fees. Keep in mind, basic counseling is available for free by many nonprofit and for-profit agencies.
The fees you may encounter include those for enrollment, monthly service, education, and a debt management plan. You may also be asked to provide a voluntary contribution. We recommend looking for counseling organizations that don't charge for basic counseling, educational resources, and tools. Further, be wary of requests for voluntary contributions.
If you are looking for specialized counseling, a debt management plan, or something else that incurs fees, the costs should be transparent, disclosed upfront, and paid after the service is provided. Also, if you can't afford the fees or contributions, ask if the organization offers fee waivers.
Does the organization set realistic expectations?
The truth of the matter is that there are no quick, easy, legitimate fixes to financial problems (unless you hit the lottery). Improving your situation requires discipline, a change in behavior, and consistency over time. Credit counselors can show you the way and even help you through DMPs but you will have to stick to the plan and do the work.
Look for organizations that communicate this truth. Verbiage should not promise a short-term quick fix. Most DMPs take three to five years to complete and working independently may take you even longer. While quick and easy promises may be enticing, look for companies that set realistic expectations.
How many years has the organization been in business?
Length of time in business speaks to a business's legitimacy. Check when the business was founded and mark a positive note for those with more experience.
Does the company have the licensing required in their state?
Check the licensing requirements for your state and ensure that the organization has the licenses needed to provide its services to you.
Is there a minimum debt requirement?
Legitimate credit counseling agencies should not set limits based on the size of your debt. They should be willing to help no matter the size and even if you have no debt.
What kind of credit education and tools are available?
Check out the organization's resources. Do they provide you with a collection of content that can educate and support you? Are there tools to assist you in your budget planning, financial assessment, etc. The best agencies will provide you with a free resource center that is rich with materials so you can help yourself. Of course, some resources may fairly come with a cost, such as on-site classes or in-depth webinars but there should also be a wealth of free information.
Do they have affiliations or accreditations?
Accreditations and affiliations, such as those below, help to ensure that credit counseling agencies employ fair business practices and put the customer first.
For an agency to be affiliated with the National Foundation for Credit Counseling (NFCC), it must pass in eight areas which include quality assurance, governance and admin, human resources, and professional practices. NFCC agencies must also adhere to a rigid set of standards specific to the industry. In short, an NFCC accreditation can give you peace of mind that a company has been thoroughly vetted and approved.
The Financial Counseling Association of America (FCAA) is a member agency of credit counseling services that requires members to adhere to state licensing requirements. Additionally, they must offer free financial counseling, education, programs, and options to help people get out of debt.
The Council on Accreditation (COA) is a nonprofit accreditor of human services. Its accreditation ensures that an organization is meeting industry best standards, protecting privacy, employing properly trained staff, supporting positive outcomes, and more.
The following associations also help to vet, certify, and/or verify a professional or organization's competence in credit counseling.
- Association for Financial Counseling and Planning Education (AFCPE)
- Association of Independent Consumer Credit Counseling Agencies (AICCCA)
- National Association of Certified Credit Counselors (NACCC)
By choosing an organization with at least one accreditation or affiliation, you help to ensure they are running a fair and legitimate operation. Also, don't forget to ask about the qualifications of the individual counselors.
How do they support their clients?
How will you communicate with the counselor? Do they provide the counseling in-person, over the phone, via video chat, email, live chat, etc? Find out how the initial sessions will be conducted, as well as how you will be supported on an ongoing basis.
Now you know the key features to consider when comparing credit counseling companies you're ready to find the best fit for your particular needs.
Don't forget to read what other consumers have to say about a company. Also, remember that credit counseling companies will focus on setting repayment programs. You will need a debt settlement company if you want help negotiating a smaller debt balance with creditors.