TopTen Tips For Finding a Credit Counselor

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:

1. Fees

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.