A legitimate, certified credit counselor may offer just the help you need to get a handle on your financial problems. A nonprofit credit counseling agency serves as an objective party to help you see your financial situation without emotion. In addition, a trained and certified counselor may be able to offer you some credit education, personalized budgeting advice, and a custom-tailored plan to get you out of debt.
Recognizing debts credit counseling can help with
Although credit counseling can help in a variety of circumstances, it’s essential in five situations:
Mortgage default
Multiple bill collectors
Joint credit problems
Debts that are backed by assets
Bankruptcy
In all these situations, you stand to benefit from talking to a professional who can help you with experience, resources, and an unbiased outside view of your situation.
What a credit counseling agency can offer you
A good, certified credit counselor can offer thoughtful and useful solutions. Expect more than one option for resolving things, including some options you won’t like. Your counselor can give you a balanced perspective of what you need to do, how long it will take, and what resources are available to help you along the way. Your counselor will probably discuss bankruptcy as well as other solutions.
Goals for the future
A good credit counselor offers solutions with your future goals in focus. A solution that works for you not only deals with current issues but also takes into account how you see your future. For example, if you’re planning to buy a house, get a security clearance at work, or send your triplets to college in five years, that future goal affects which courses of action best fit your needs.
Improved communication with your family
For about 70 percent of the more than 2 million people who bare their souls to credit counselors each year, advice and direction are all they need. One unexpected by-product of credit counseling is improved financial and other communication. For many couples and families, the credit counseling session is the first time they openly communicate about goals, spending priorities, and even hidden debts.
A plan that works for you
Expect to have a customized action plan when you’re finished with credit counseling. An action plan has to fit the way you live, or you won’t follow it. A comfortable budget designed with your spending and saving style in mind is more likely to be effective.
An often overlooked aspect of using nonprofit credit counseling agencies is that they know a lot about other community resources that may be able to help.
The credit counseling process isn’t something you can breeze through in 15 minutes, because the plan you walk away with is tailor-made for you and your financial situation.
Periodic checkups
Expect some fine-tuning to adjust to changes down the road. Although your counselor anticipates bumps in the road as much as possible when developing your plan, the counselor can’t foresee the future. Ongoing involvement with your credit counseling agency as you navigate this credit repair journey helps you stay the course.
Expect the agency to make it easier for you by giving you the names, e-mail addresses, and phone numbers of people to contact beyond the agency for more help. You should be able to ask your counselor for additional suggestions and referrals as you go along, although most people, when they have a workable plan in hand, are off on their own.
Finding a great credit counseling agency
Here are some things to look for in a quality credit counseling organization:
501(c)(3) tax-exempt status
Accreditation by a national independent third-party accrediting organization, especially the Council on Accreditation
A willingness to spend at least 45 to 60 minutes with you, and more if needed — and for free
A willingness to offer help the way you’re most comfortable receiving it — in person, by phone, or via the Internet
Here are a couple of organizations that can help you with your credit counseling needs:
The National Foundation for Credit Counseling: phone 800-388-2227
The Association of Independent Consumer Credit Counseling Agencies: phone 866-703-8787
Debt management plans
A debt management plan requires that the agency act as an intermediary, handling both communications and payments on your behalf for a small monthly fee. This plan includes revised payments that
Are acceptable to all your creditors
Leave you enough money to handle your living expenses
Generally get you out of debt in two to five years
Debt management plans are an alternative to bankruptcy. Here’s how it works: When creditors realize that you can’t meet the original terms of your credit card or other loan agreements, they also realize that they’re better off working with you through your credit counselor. Your creditors are likely to be open to a number of solutions that are to your advantage, including
Stretching out your payments so that the combination of principal and interest pays off your balance in 60 months or less
Changing your monthly payment to an amount you can afford to pay
Reducing your interest rate and/or any fees associated with your loan
Refraining from hounding you day and night
Why would creditors be willing to do these things for you? Because if they don’t, and you really can’t make the payments, they’ll spend a lot more money on collections than they’d give you in concessions. Plus, if you file for bankruptcy, your creditors may never get their money.
The critical point here is that the creditor has to believe you can’t make the payments as agreed.
The minuses may include
A negative impact on your credit report, depending on how your creditors report your credit counseling account
Restricted access to credit during the term of the plan
Difficulty changing credit counseling agencies after you begin a debt management plan