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Credit Counseling

Reputable nonprofit community-based credit counseling organizations can provide one-on-one assistance to help you improve your credit. Don’t confuse expensive credit-repair clinics with legitimate nonprofit credit counseling organizations. Be sure to watch out for organizations that charge big upfront fees, make unrealistic promises, and lack accreditation credentials.

Before working with an organization ask how the organization reports to credit bureaus, how often they talk to your creditors, if you will need to change your payment dates to coincide with dates they pay the creditors, and how much time will it take to pay off your debt.

Some credit counseling agencies use debt management plans (DMPs) to help you manage your debt. DMPs require you to deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills. These plans use a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you. DMPs are not for everyone. You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money.

If you decide that you need additional credit advice and assistance, the Federal Trade Commission suggests asking the following questions to the counseling service that best meets your needs.

  • 1. What services do you offer?

    Look for an organization that offers a range of services, including budget and credit counseling, and classes in savings and debt management, provided by trained and certified counselors. Counselors should discuss your entire financial situation, and help you develop a personalized plan to solve your current money problems and prevent future ones. The initial counseling session typically lasts an hour, with follow-up sessions to follow. Avoid organizations that push debt management plans, since they’re not for everyone. Sign up for a DMP only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. If you were on a DMP with an organization that closed, ask new credit counselors what they can do to help you retain the benefits of your DMP.

  • 2. Are you licensed to offer your services in my state?

    Many states require that an organization register or obtain a license before offering credit counseling, debt management plans, and similar services. Don’t hire an organization that hasn’t fulfilled the requirements for your state.

  • 3. Do you offer free information?

    Avoid organizations that charge for information about their services.

  • 4. Will I have a formal written agreement or contract with you?

    Don’t commit to participate in a DMP over the telephone. Get all verbal promises in writing. Read all documents carefully before you sign them. If you’re told you need to act immediately, consider finding another organization.

  • 5. What are the qualifications of your counselors? Are they accredited or certified by an outside organization? If so, which one? If not, how are they trained?

    Try to find an organization whose counselors are trained by a group that isn’t affiliated with a firm that provides credit.

  • 6. Have other consumers been satisfied with the service they received?

    Once you’ve identified credit counseling organizations that suit your needs, check them out with your state Attorney General, local consumer protection agency, and Better Business Bureau. These organizations can tell you if there are any consumer complaints on file. Be aware that the absence of complaints doesn’t guarantee legitimacy. If there are consumer complaints, you should be very careful.

  • 7. What are your fees? Are there set-up and/or monthly fees?

    Get a detailed price quote in writing, and specifically ask whether all the fees are covered in the quote. If you’re concerned that you can’t afford to pay the fees, ask if the organization waives or reduces fees when providing counseling to consumers in your situation. If an organization won’t help you because you can’t afford to pay, look for help elsewhere.

  • 8. How are your employees paid? Do the employees or the organization benefit if I sign up for certain services, pay a fee, or make a contribution to your organization?

    Employees who are counseling you to purchase certain services may receive commissions. And many credit counseling organizations receive compensation from creditors for enrolling consumers in DMPs. If the organization won’t disclose whether it receives compensation from creditors, or how their employees are compensated, go elsewhere for help.

  • 9. What do you do to keep personal information including name, address, phone number, and financial information confidential and secure?

    Credit counseling organizations handle your most sensitive financial information, and should have safeguards in place to prevent misuse.