Credit Counseling Review
How to Choose the Best Credit Counseling Service
The top performers in our review are ClearPoint Credit Counseling Solutions, the Gold Award winner; AAA Fair Credit Foundation, the Silver Award winner; and Springboard, the Bronze Award winner. Here’s more on choosing a credit counseling service that meets your needs, along with detail on how we arrived at our ranking of 10 services.
Almost everyone has some amount of debt. Sometimes due to factors beyond your control, such as losing a job, debt can start to swell and overwhelm you. If you get to the stage where you're putting more and more on your credit cards and feel like you need help managing your debt, putting a call into a credit counseling service can be a good idea.
Credit counseling is generally a free service and includes an evaluation of your finances and close look at your spending. Counselors can even help you draft a budget. Sometimes this may be all you need to get your debt under control, but if you need more assistance, credit counseling agencies can enroll you in a debt management program, which combines your debts into one monthly payment you make to the agency. If your debt is too large, you may want to look into debt consolidation or debt settlement services. If you'd like to learn more about counseling and your options, have a look at our articles on credit counseling.
Credit Counseling: The First Session Is Free
If you make the decision to get credit counseling, the first thing you do is call to get an initial consultation. During this call, the counselor helps you get a clearer picture of your finances. Often, the counselor helps you draw up a budget and offer solutions to help you find places where you can cut back on your spending. This initial call usually lasts between 45 minutes to an hour.
The best credit counselors usually follow up by sending you an outline of your spending, debts and income along with ideas on how to budget better and reduce spending. Some suggestions our reviewers received include cutting down on eating out by packing their own lunch, bundling cable and internet services, and making their homes more energy efficient. The counselor may also suggest a debt management program if he or she thinks your amount of debt warrants it.
This first session is always free and is a good starting point to figure out what options are available for managing your debt. These options include adjusting your budget, debt settlement, a debt management plan and bankruptcy. Your counselor considers the amount of debt you have and your income when he or she makes these recommendations.
It's a good idea to do some prep work before you make your call. Your counselor will ask about your debts, including home mortgage, student loans, auto loans and credit cards. Also, you'll need to provide your credit counselor with an accounting of your bills and expenses. Most calls reach a point where the counselor wants to pull your credit. This is a soft pull and doesn't have a significant impact on your credit score. This allows the counselor to get a clear picture of your accounts, including how much you owe. The credit pull also gives your credit counselor the information necessary to draw up a debt management plan should you decide to enroll in one.
Debt Management Plans: How It Works & What You Should Know
The Process: A debt management plan is an agreement worked out between a credit counseling agency and your creditors. It's important to know that a debt management plan can only be used on unsecured debt, such as credit card debt. The credit counseling can usually get some concessions from your creditors, such as a reduction in interest rates or an elimination of late fees. As part of a debt management plan, you need to close your credit card accounts. All of your payments are then combined into one large payment you make to the counseling agency. The agency then distributes the appropriate payments to your creditors.
The Cost: While consumer credit counseling is free, there are some costs associated with a debt management plan. Usually there is a program setup fee and a monthly fee. These fees vary depending on the state you live in and your income. Generally, waivers are available if you earn up to 150 percent of the poverty line. Additionally, most agencies have a cap on their fees. The highest origination fee is American Financial Solution's at $75. ClearPoint Credit Counseling Solutions does not charge a setup fee.
The Results: By having lower interest rates, more of your payments are applied to the principal balance, which helps you pay down your debts faster. Generally, a debt management program lasts from three to five years. The program ends when you've paid off your debt, but if you're not pleased with the results or the terms of your program, you can cancel whenever you like.
The Risks: A debt management program isn't as risky as some other options for managing your debt, such as debt consolidation. You should be aware that if you choose to begin a debt management program, it will impact your credit score in the short term because you will need to close your accounts. This is short lived, but it could affect your ability to get loans while you're enrolled in the program. In the long term, using a debt management program can help your credit score by reducing your debt load.
Credit Counseling Services: What We Evaluated & What We Found
Advisory & Education
Our reviewers placed calls to each of the agencies on our review and evaluated the initial consultation we received. The best consultations give you a full breakdown of your debts and income, and they work with you to establish a budget, send follow up materials and recommend alternatives to a debt management plan.
The best counseling we received proposed debt management plans as just one of many options for managing heavy debt. It isn't a bad sign if you're offered a debt management plan when you first call in since these programs are relatively low-risk, but we consider services that propose other solutions to be more credible.
In addition to providing counseling, the best credit counseling services also provide a wealth of educational resources to help you learn about finances and managing your money. These resources include calculators and budgeting tools. We scored each of the agencies we reviewed on the quality of the tools and calculators it provides. The best tools provide context to your situation and give you an idea of where you stand.
The tools we consider the most helpful are a debt-to-income ratio calculator, a payoff calculator and a financial outlook quiz. These three tools provide the best outline of your current financial situation. The best of these tools offer graphical breakdowns, payoff timelines and recommendations. AAA Fair Credit Foundation has the widest variety of tools that provide clear recommendations and suggestions to you.
Agencies were also scored on the quality of the educational resources they provide and the breadth of the topics they cover. These resources include downloadable eBooks, videos, podcasts, FAQs and blogs. We also considered whether these services were updating these resources and providing up-to-date information. Six of the ten services we reviewed had posted at least one new article since the beginning of the year.
ClearPoint Credit Counseling Solutions rated the best in this regard. It has a frequently updated blog as well as podcasts and eBooks that cover topics as diverse as budgeting, making five-year plans and avoiding financial scams.
Fees & Availability
If you choose to enter a debt management plan, there are a few fees that are included. You usually pay a setup fee and a monthly fee. The lowest setup fee is ClearPoint Credit Counseling Solutions, which doesn't charge one. The lowest monthly fee belongs to InCharge Debt Solutions, which charges $25 a month for its program.
It's important to know that these fees vary depending on the state you live in, and it's possible to get waivers if your income meets a certain threshold, usually around 150 percent of the poverty line. The amounts listed on our review represent the maximum these agencies charge.
Another important consideration is the availability of counseling. Many of these counseling firms only offer in-person counseling in the cities they are based in. If you call and request counseling, the agency must be licensed in your particular state to be able to offer its debt management services to you. Six of the ten credit counseling services we rated are licensed in every state. AAA Fair Credit Foundation is available in the fewest states. American Financial Solutions, DebtWave Credit Counseling and Alliance Credit Counseling all have a few exceptions.
The best services also offer night and weekend hours. You may not be able to make a call during business hours, so having counselors available during weeknights and weekends can give you the opportunity to call when you have the time to spare, since most initial consultations can last up to an hour.
Accreditations are industry-based entities that offer training and certification that promote ethical and best practices within the industry. The three main accreditation organizations are the Financial Counseling Association of America (FCAA), the Association for Financial Counseling and Planning Education (AFCPE) and the National Foundation for Credit Counseling (NFCC).
In order to receive accreditation, credit counselors must pass a training course. For an agency to maintain accreditation, it must have annual audits, be bonded and insured, comply with consumer disclosure requirements, and provide customers enrolled in debt management programs with a detailed review of their current and prospective income.
Our Verdict & Recommendation
The best credit counseling agency in our review is ClearPoint Credit Solutions. It has no setup fee for its debt management program and has the best blogs and informational articles of any service in our review.
Springboard offers a wide variety of seminars and courses to provide you with financial education. In addition to credit counseling, Springboard provides bankruptcy, housing and student loan counseling.
AAA Fair Credit Foundation offers the widest variety of calculators and financial tools. These are particularly useful in helping you figure out where you stand financially before you place your call.
American Consumer Credit Counseling provides in-depth budgeting analysis and multiple options for dealing with financial difficulties. Though it offers an excellent initial consultation, it doesn't offer as many quality tools and calculators as other services.
InCharge Debt Solutions is another counseling agency that offers a wide array of useful budgeting and payoff estimation tools.
All credit counseling services we reviewed offer budget consultation and debt management plans. The best counselors offer you multiple options for managing your debt and a detailed breakdown of where you can cut spending. In addition to quality counseling, the best agencies offer a wide variety of tools, calculators and educational articles to help you learn more about your financial situation.