Credit Counseling
There aren't any easy answers for those who find themselves with major credit woes. But if you’re unable to make the minimum payments on your debt accounts or are regularly late, or if your interest rates are so high you can’t see a way out, your best option may be to consider hiring an expert for help.
Credit counseling is a viable option for those determined to get out of debt, however, there are some things you should be familiar with about credit counseling. First, no credit counselor will be able to help you dig yourself out of the hole if it’s too deep—if you are severely in debt then you may want to consider filing bankruptcy, although credit counselors will usually try their hardest to help you get back on your feet.
Do I Need Credit Counseling?
If you're able to pay your bills and are current on all your accounts, you almost certainly don't. If your interest rates are too high, you usually can negotiate a lower rate with your credit-card companies just by asking—or threatening to move your account elsewhere.
However, here's when you might think about credit counseling:
- You simply can't pay the minimums on your credit cards.
- You're consistently late paying one or more of your regular bills.
- You're being contacted by creditors and collection agencies.
- Your efforts to work out reasonable repayment plans with your creditors have failed.
How long will the process take?
- A typical credit counseling program takes between 2 to 4 years to complete, but anything that would stretch over 5 years usually calls for bankruptcy filing.
What happens during the process?
A typical first-time credit counseling session consists of three small workshops. Meetings take place in-person, by phone, by mail, or even online.
- First, the credit counselor may ask you detailed questions about your financial and economic history. This includes your weekly, monthly, and annual income and spending.
- Second, they will want to know what the problem really is. Their probing but non-judgmental questions will help answer questions such as "Why are you in so much debt? What started your debt?"
- Lastly, the counselor will review your financial situation in a non-confrontational manner and provide possible solutions. He/She will help you develop a spending plan that covers your living expenses and payments to your creditors. It’s important to stick with it if you’re serious about freeing yourself from Debt. According to the NFCC, only 50% of the people who employ debt counseling actually complete their new debt plan, while the other percent go bankrupt or back out.
Visit
NFCC.org for answers to Frequently Asked Questions regarding credit counseling
Credit Counseling Services
A decade ago the industry was dominated by the National Foundation for Credit Counseling (NFCC), whose nonprofit affiliates -- usually known as Consumer Credit Counseling Services -- negotiated lower interest rates and payment plans for people who had fallen behind.
But the services now have plenty of competition. A rise in consumer debt in the 1990s helped spawn hundreds of rivals, many with million-dollar advertising budgets, slick Internet come-ons and sound-alike names.
Always research and study your options before you sign a contract with a debt counselor. Once you've decided you want credit counseling, you should investigate the company or service carefully before signing up.
Important things to look for:
- Up-front fees. Set-up fees range from 120 to $50. Anything higher could be a quick scam
- Accreditation. Legitimate credit counseling firms are affiliated with either the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA)
- Delayed or missing payments. Some companies pocket your first months' payments as a fee, rather than passing the money on to your creditors. Missed payment, hello? Find out how much of each monthly payment is going to your creditors, and when it will be sent to them.
- Realistic Promises and reasonable payment plan options and counseling methods. Some companies falsely promise that you can settle your debts for little or no money, without hurting your credit rating. Legitimate credit counseling services help you pay back what you owe, albeit at lower interest rates, and acknowledge there may be some affect on your credit rating and ability to obtain new credit.
- Better Business Bureau complaints against the counseling agency
The National Foundation for Credit Counseling - (NFCC)
- The National Foundation for Credit Counseling has been the most trusted, reliable, and largest non-profit organization counseling service since 1951. Their goal is to make sure you gain back your financial security by all means necessary. Counseling sessions can be done via phone, internet, or person to person. NFCC counselors are specially trained and certified to help your needs, using the methods that you chose.
*To learn more about the NFCC, visit their site
here
Association of Independent Consumer Credit Counseling Agencies - (AICCCA)
- The Association of Independent Consumer Credit Counseling Agencies is a nationwide organization that strives for the most prestigious available debt counseling services. The association’s task and vision is to promote the best service and most professionally qualified debt management specialists in the country. Using industry standards, maximum protection, best interests, leadership, financial education, and the highest monetary service, the AICCCA will do everything in its power to make sure you are back on your feet, and out of debt for good.
*To learn more about the AICCCA, visit their site
here
For a list of approved credit counseling agencies in your state, click here
Credit Counseling and Credit Score
Credit counseling may have some effect on your credit, or it may have none at all. Some lenders may not want to do business with you after you've completed your plan, but others will.
Contrast that with a bankruptcy, which is viewed by almost all mainstream lenders as a huge negative on your credit report. These lenders, who prefer to deal with consumers with good credit, typically won't do business with you for the 10 years the bankruptcy remains on your file.
What happens to your credit during counseling largely depends on how your lenders report your account to the credit bureaus.
Some lenders say they even view credit counseling as an encouraging sign that a customer is getting his or her debts under control. Citibank, the largest issuer of credit cards, says people who have fallen behind on their payments often improve their status in the company's eyes by enrolling in -- and sticking with -- a debt repayment plan.
"We always viewed that as a positive," said Citibank spokeswoman Maria Mendler. "We've seen that for people who enter these programs, there's a significantly lower rate of default."
Detailed information on credit scores and how to fix your credit report