So you’ve decided to talk to a credit counselor about your financial health. This is an important decision that will impact you and your family for a very long time so you need to put potential advisor candidates under a microscope. First off, shop around. It doesn’t matter what you’re in the market for, it’s rarely a good idea to buy or sign up for the first thing you look at. Once you’ve assembled a pool of likely prospects, keep the following things in mind:
Credit counseling should be a free service. Debt management programs should run no more than $50 to set up the plan and then a monthly maintenance fee of either $5 per account being managed or $25 total depending on the number of accounts you’re dealing with.
CAUTION! If a service is unclear about their fees or if they hedge when asked what they charge, RUN don’t walk to the nearest exit.
2. Counseling vs Management
Understand the difference between counseling and management. A credit counselor should work with you to analyze your current debt situation, develop a written plan about how to correct negative situations and then assist you to implement the strategy. This should have no impact on your credit report and FICO score. Debt management programs are for taking control of (and being responsible for) your debt payments. The debt management counselor will contact your various creditors and request a reduction in the interest rate they charge you. The counselor will also negotiate to have over-the-limit and late fees removed from your accounts so that more of the money you pay actually goes toward lowering your debt. Being on a debt management program will be noted in your credit report and can affect your FICO score but once you’ve completed the program, the notation should come off of your credit report.
CAUTION! If the credit counselor’s automatic response to your debt scenario is to push you into a debt management program, it’s another sign to lace up your running shoes and go somewhere else.
3. More Fee Figures
Many debt management service web sites state that their fees are based on your ability to pay but when it comes down to brass tacks, there is a lot of pressure to pay the full fee even if you can’t afford it. Ask each counseling service if their fees are voluntary.
CAUTION! Don’t allow any agency to pressure you into paying the full fee if you cannot afford it.
4. Employees’ Paychecks
Most credit counseling agencies are non-profit organizations but it pays to ask how the person you’re talking to gets paid, especially if they’re talking up a debt management program as the only plausible debt solution.
CAUTION! Employees that are paid on commission for placing consumers in a debt management program do not have your best interests at heart.
5. Debt Savings and/or Consolidation
CAUTION! Listen closely to the person on the other end of the phone line. If they’re reading from a script and start throwing the words “debt savings” around or mention the potential for “debt consolidation” as an option, end the interview. What they are actually pitching you is a spiel for debt settlement which is a shady, last-ditch option to get out of debts for pennies on the dollar. It’s not quite a scam but the devastating consequences to your credit report and FICO score from participating in this type of program are far-reaching making it practically impossible for you to secure ANY credit for at least as long as declaring bankruptcy would affect your credit-worthiness. See our article “Surviving the Debt Consolidation Maze” for more information on the various debt programs out there.
6. 20-Minute Test
If the credit counselor you’re talking to offers you a debt management program in the first 20 minutes of your conversation, you need to end the conversation and look elsewhere. Credit counseling should not just be a sales-pitch to move you into a debt management program. A thorough counseling session (before any solutions are offered) should take between an hour to 90 minutes.
CAUTION! If they think they’ve got you sized up in the first minutes of the conversation, you know they’re aiming at your wallet.
7. Customized Solutions
You’re unique, your debt solution should be too. A “one size fits all” approach is not going to work well. The most effective strategy will employ a variety of educational elements, counseling and, if necessary, a debt management program in some instances.
CAUTION! If the counselor assumes that the best route to your financial freedom is a debt management plan rather than discussing all the available options such as classes on managing credit and money, budgeting, saving and spending, they’re waving a large red flag.
8. Advertising Blitz
Most credit counseling agencies are honest with their clients and treat them fairly. There are some that are being investigated or sued for deceptive practices such as charging hidden or unreasonable fees or don’t provide any substantive advice or guidance. Don’t be deceived by the bright lights and smiling faces of television and Internet ads making unrealistic promises. Correcting poor credit choices and restoring healthy balances to your bank account takes time. Marketers are experts at making a service sound like the greatest thing since sliced bread even though it’s practically identical to every other counseling agency in the field.
CAUTION! A good marketing campaign does not guarantee good advice. Do your homework and ask a lot of questions.
9. Scammers Aplenty
Be wary of telemarketing calls or unsolicited emails. NEVER, EVER give your personal information (social security numbers, account numbers, driver’s license number etc.) to any agency that you haven’t thoroughly researched and feel comfortable with. Just recognizing a name doesn’t constitute trust. The Better Business Bureau is an invaluable resource as is your own state’s Attorney General office.
CAUTION! Don’t pay BEFORE you receive service.
10. Listen To Your Instincts
After you have discussed your situation in depth with a counselor if you feel uncomfortable with the recommendations that are offered, keep looking. It’s all right to move on. After all, it’s your financial security and health you’re dealing with. These decisions you must make will have a lasting effect in your life and that of your loved ones.
Get started on the path back to financial fitness by reading our reviews of the best credit counseling sites and good luck.