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If you’ve been saddled with debt for a while or your credit score is in the tank, it may be time to look into some professional help. A reputable credit counselor could help get your credit and your financial life back on track. But you’ll notice how we said “reputable” here. Not all credit counselors are created equal. To choose a credit counselor, you’ll want to properly vet them — and their agency. You can do so by checking out potential counselors with your state Attorney General and local consumer protection agency, the Federal Trade Commission suggests. You can also check out The United States Trustee Program’s list of credit counseling agencies approved for pre-bankruptcy counseling, it says. Let’s take a deeper look at credit counseling.
A credit counselor is essentially a certified and trained money management expert. They can help you review your budget and develop a plan for paying down your debts. Credit counselors also set up debt management plans (DMPs). If you sign up for a DMP, you’ll make a monthly payment to your credit counselor, who, in turn, will pay your creditors on your behalf.
Credit counselors may offer free consultations, educational materials and workshops. However, you typically pay a fee if the counselor sets up a debt management plan (though it may be waived by some agencies if you are in particularly dire straits) and there could be other charges associated with credit counseling services. Be sure to ask a credit counseling organization you are considering for a price list or free quote before signing up for their services.
It’s important to limit the costs of a credit counselor. You can opt for a nonprofit credit counselor with a local office or someone who is accessible online or by phone who offers free or low-fee services. Avoid debt counseling companies that charge huge fees for their services.
The National Foundation for Credit Counseling has certified credit counselors available all over the country and is a great place to start your search for a reputable and affordable credit counselor. Another highly reputable organization is the Association of Independent Consumer Credit Counseling Agencies. Credit unions, universities, military bases and local housing authorities also offer nonprofit credit and debt counseling services.
Here are some questions to ask a credit counselor before agreeing to pay for their services.
Are the credit counselors certified? Ask for an explanation of their training and background. In addition to the background checks we mentioned above, you may want to check to see if a credit counselor has any complaints filed against them with the Better Business Bureau.
It’s best to ask for this information in advance and before giving a counselor the details about your financial situation. You’re checking them out, not the other way around.
Is the first budgeting session with a credit counselor free? How much do they charge for their additional services? Do they offer debt management plans? If so, how is this program structured and how much will you pay for them to talk to your creditors? (Remember, when you agree to enroll in a debt management plan, your credit card companies may agree to reduce your interest rates and let you make one monthly payment to the credit counseling agency. The agency, in turn, pays each of your creditors.)
Once you research a few nonprofit credit counselors in your area, choose a counselor you feel comfortable sharing your personal financial information. A good counselor will ask you tons of questions about your bills and budgeting. So choose a credit counselor who puts customer service at a premium and puts your financial interests and not their fees first.
Remember, credit counselors aren’t the only professionals who can help you with your money and credit woes. Many consumer attorneys offer free consultations and reputable credit repair companies can help you dispute errors on your credit report. But, whether you choose to enlist these services or tackle your debt issues alone, it can pay to track your progress. You can view two of your free credit scores on Credit.com. These scores come along with a free credit report snapshot that can help you spot what you need to do to improve your credit.
Jeanine Skowronski contributed to the reporting of this article.
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