How to Find and Choose a Credit Counseling Company

Should You Use a Credit Counselor?

Have you tried to get out of credit card debt on your own but find you simply can’t stay on track? You’re not alone. Many people fall for the minimum payment trap the credit card companies can get you with. Getting out of debt fast and getting your spending under control is hard to do and you shouldn’t feel bad if you are having trouble. This is where a credit counseling company can help you in getting out of debt. They can work with you to establish an affordable monthly payment, work with your creditors, and help you create a budget so that you can stay on track.

But not so fast, there are a few things you should look out for as not all credit counselors are created equal. Unfortunately, there are people out there who will take advantage of those who are in debt. When you’re deeply in debt and feel you’ve run out of options you become desperate, and some companies prey on the desperate. So, before flipping through the phone book and finding a credit counseling company I first want to share a few tips to help you in your search.

What Can You Expect From a Credit Counseling Agency?

Just what can you expect from a credit counseling agency? Besides providing general budgeting and money management advice to help you prevent future debt problems, they can negotiate with your creditors to get them to eliminate late fees, extend the term of your loan, or lower your interest rate. If your debt is burdensome enough, the credit counselor will encourage you to enter into a debt repayment plan (usually referred to as a debt management plan, or DMP) requiring you to pay a set amount to the agency each month, which they then pay to your creditors.

They are also there for you if you have questions and make it comfortable to talk about your financial situation. Don’t be afraid to ask them about your debt, what effects it will have on your credit score and how to improve it, or if you’d like to do whatever you can to improve your situation. They are there to help, and sometimes just being able to talk to someone about your situation can be a huge relief.

Finally, understand that credit counseling companies are not the same as debt settlement companies. Counselors simply work with the debt you have and make it possible for you to repay what you owe. They don’t, or shouldn’t be in the business of making your creditors forgive debt and they shouldn’t be promising you that they will magically repair your credit. This is not what you want, and if that’s what they are saying they can do then they aren’t the counselor for you.

How Do I Choose a Credit Counseling Agency?

For starters, find out which credit counseling agencies near you are members of the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA), the largest and most respected networks of credit counseling agencies. Members of these associations are put through a rigorous accreditation process performed by independent third-party organizations, which carefully review the operating practices of the credit counseling agencies and the effectiveness of their counseling.

The widely-known Consumer Credit Counseling Service (CCCS) is a member of the NFCC. You can find a list of agencies near you in your local phone book yellow pages or online at NFCC’s site or AICCCA’s site.

Once you’ve narrowed your search down to one or two agencies, it’s a good idea to check them out with one or more of the following to see if complaints have been filed against them: your state Attorney General’s office, local consumer protection agency, and Better Business Bureau. By checking them out at one of those resources you’ll be able to find out if there are any customer complaints or shady practices going on that might make them a poor choice.

After you’ve created your short list of local agencies you’ll want to briefly interview them over the phone by asking a few questions such as:

  • What services do you provide?
  • Do you provide free educational materials? If so, how can I obtain them?
  • Are there fees for your services? What are they? Do I have to pay anything up front? Are there monthly fees? How are they calculated?
  • What training do your counselors have? Are they certified or accredited?
  • Who oversees or regulates your agency? Is your agency audited annually?

This may seem like a lot of work, but you need to remember that you will be trusting your credit history and finances with your counselor so it is not a decision to take lightly. The more information you have, the better the decision you can make.

Should You Use a Credit Counseling or Do It Yourself?

After you’ve spoken to a representative of the credit counseling agency, you’ll have to decide whether to use the agency’s services or go it alone. Credit counseling agencies really can’t do anything for you that you couldn’t do for yourself. You could attempt to negotiate with your creditors to lower interest rates, extend loan terms (to catch up on late payments or make your payments more manageable), or remove late fees. In reality, the average person will probably not be as effective at doing this as a credit counselor, but it may be worth a shot before you enter into a debt repayment plan.

Before you make a decision you should be honest with yourself and understand how you got into debt in the first place. If it was simply because of spending more money than you had and the inability to control your credit card spending it might be wise to accept the fact that you may have a problem and could use some help. In other cases your debt may have come from something outside of your control like an unexpected medical bill and maybe it would be easy enough to create a new budget on your own. But you do have to ask yourself how and why you got into this mess to begin with and seeking help if you really need it.

Even I’ve Used a Credit Counselor

I’m no different than any of you. In college and in the few years that followed I found myself under a mountain of debt. Not $10,000, not $50,000, but even worse. I was spending like crazy, I funded a business with credit cards, and as expected, things didn’t go as planned and I was on the hook for tens of thousands of dollars of debt. I was young and stupid, and even worse was I didn’t want to face the fact I was in serious trouble. So, eventually payments started getting made late, collection agencies started harassing me and I was at a loss.

I spoke to an accountant and a few other people and they told me bankruptcy was my only option. That was unacceptable to me. I willingly borrowed the money, I had an obligation to pay it back, and I didn’t want to take that route with a wedding and hopefully new home purchase on the horizon. So, I sucked it up and finally admitted I needed help. I searched for credit counselors and reviewed a few programs and finally settled on GreenPath.

The process was simple. I scheduled an initial meeting with a counselor where I brought in all of my debt statements and a basic budget of how we were currently spending money. As I spoke with the counselor they looked at all of the required minimum payments and where some extra money could be found and said they would contact some of the card companies to discuss a debt management plan that could lower the interest rates to make the monthly payments more affordable and stop the late fees. From there, they should be able to determine how much I’d have to pay each month to get on track to eliminate the debt completely in about six years.

After the counselor called all of my creditors it was a relief to know that some did in fact lower interest rates, which alone would save a lot of money. Others didn’t want to budge, so those cards were just made a priority so they would be paid off first. But the best part of the whole thing is that I no longer had to make 12 different credit card payments each month. Now, I had a single bi-weekly debit taken out of my checking account that went directly to GreenPath. They then went on to use those funds to pay all of the creditors. What a relief! They took the money out each Friday that I got paid, so there was simply no way for me to miss a payment or spend money I didn’t have. It was hard at first to get used to such a small amount of take-home money when I got paid, but after a few months you just learn to adjust to what you have.

To sum up the story, I was able to eliminate what most would consider an insurmountable amount of debt in just under four years, even faster than the counselor planned for. Could I have done it on my own? Possibly, but it was obvious I needed a little help to make things manageable, and that’s exactly what they did. Then as I slowly started to make more money I simply applied a little extra to those bi-weekly payments and was able to shave a few years and thousands in interest off of the payments. In short, it was the best financial decision I’ve ever made.

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

2 comments
graphic art
graphic art

Many people believe that the decision to join a credit counseling company is one of the hardest decisions to make when in all reality it can often be finding the right company to use.

Credit Girl
Credit Girl

I would definitely consider using a credit counselor if like in your instance I racked up a lot of credit from potentially forming a business or even student debt and lifestyle debt. It's really hard after you graduate because you have thousands of dollars in loans not to mention continually adding on apartment rent, car loan, to name a few..