Tips on Choosing A Reputable Credit Counseling Agency

• Take the time to shop around. You do not need to provide personal financial information in order to find out the basics about an agency. Ask friends and family for referrals or consult the Yellow Pages. Be careful about claims made in advertising. Many ads are exaggerated and some are even untrue. It is a good idea to call your local Better Business Bureau and the consumer protection office of your state Attorney General’s office and rule out agencies that have been the subject of multiple complaints.

• Consider visiting an agency in-person before signing up. Although it is sometimes embarrassing or inconvenient to talk face-to-face with counselors, it often leads to a more thorough and direct discussion of your finances than is possible by phone or Internet.

• Look for a variety of services. Seek out an agency that will offer you a range of counseling options, not just enrollment in a debt management plan. The more options the agency offers, the more likely they will be able to offer you assistance that will fit your needs.

• Check out all costs. Most agencies offer similar “deals” from creditors to cut your debt, but their fees can vary significantly. Find out what the agency charges to set up your account (get a specific dollar amount) and for a monthly fee. Ask them if any of the fees are voluntary and if they offer lower fees for customers in serious financial hardship. Get a specific quote in writing.

• Non-profit status or an affiliation with a particular trade group does not guarantee quality. Non-profit status does not guarantee affordable fees. Nearly all credit counseling agencies are non-profit, including those that take advantage of consumers.

• Demand good customer service. Ask questions about employee training. Make sure the employee spends a good deal of time carefully evaluating all of your debts, not just your credit card bills, and looks at your pay stubs and bills before recommending a counseling plan to you. Find out if the agency provides assistance after you enroll in a debt management plan, such as one-on-one counseling.

• Ask about privacy. Make sure the agency does not sell or distribute any information about your account to others without your permission.

• Find out about employee compensation. Ask employees directly if they are paid more if they sign you up for a debt management plan. Consider going elsewhere if they say yes.

• Get the specifics on credit concessions. Ask the agency if it will deal with all of your unsecured creditors, not just those that pay the agency a fee. Find out exactly how much lower your monthly credit card balance will be and how long it will take to pay off your bills.

• Keep an eye on the agency after you sign up. If you sign up for a debt management plan, don’t stop paying your bills until the plan has been approved by your creditors. Make sure that the agency’s payments schedule allows your debts to be paid before they are due each month. Call each of your creditors the first month to make sure they have been paid on time by the agency.

• Ask about how credit counseling will affect your credit report or score. Although some creditors disclose to credit reporting agencies whether a customer is participating in a debt management plan, this won’t necessarily have a negative effect on your ability to get credit in the future. Fair, Isaac and Company, the developer of credit scoring software used by all major credit reporting agencies, says that it does not negatively score a consumer’s participation in a debt management plan. On the other hand, individual creditors that pull your entire credit report may consider your participation as a negative factor if you apply for credit after you enter the plan. Moreover, if you are considering credit counseling because you have already fallen behind in paying your debts, your credit score has likely already been negatively affected. As the situation varies significantly depending on your current credit situation, talk to your credit counseling agency and creditors about what will happen to you if you enter a debt management plan.
  
  Source: National Consumer Law Center, Inc.
  

What about Self-Help?

• Developing a Budget. The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your "fixed" expenses - those that are the same each month - like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary - like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education. Your public library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.

• Contacting Your Creditors. Contact your creditors immediately if you're having trouble making ends meet. Tell them why it's difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don't wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.

• Dealing with Debt Collectors. The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you're at work if the collector knows that your employer doesn't approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact.

• Managing Your Auto and Home Loans. Your debts can be unsecured or secured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care, signature loans, and debts for other types of services. Most automobile financing agreements allow a creditor to repossess your car any time you're in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can't do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You'll avoid the added costs of repossession and a negative entry on your credit report. If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you're acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term. If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who' s having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency near you.