How to Choose a Credit Counselor

Most Americans are only a few paychecks away from a serious financial challenge. We all have rent or mortgage payments. Add in cell phone, credit card, and utility bills that just keep coming every month, and many of us are living paycheck-to-paycheck, or nearly so.

If you find yourself falling further and further behind financially, credit counseling might be an excellent idea for you. Here are some things to keep in mind when selecting your counselor.

How can a credit counselor help you? For starters, credit counselors can negotiate with your creditors to lower your interest rates, sometimes as much as 50%. That’s a big difference over the life of a loan! However, they cannot renegotiate the overall amount of the debt.

A counselor can also help:

• Distribute payments to creditors
• Eliminate any late penalties and other fees
• Create a budget and plan to manage your debt

If any of these services sound good to you, these tips will help you find a counselor who will best meet your needs.

Shop Around

Most reputable credit counselors rely on referrals rather than engage in a lot of overt advertising. Be wary of any advertisements that unexpectedly show up in the mail. What you’re really looking for is a credit-counseling agency whose counselors are certified, preferably by an outside organization. 

Also look for counselors who aren’t paid on commission. Then you can feel more comfortable that they’re working with your best interests in mind, rather than those of your creditors. Interview several agencies and ask for some recommendations before making your final choice.

Individualized Counseling

The right solution for one person will not always be a good idea for another. Ask if your counselor will create a plan that meets your particular circumstances. Be sure to ask about the fees and get them in writing.

Typically, charges will be no more than $100 to get set up and $50 / month. State laws limit the fees that can be charged. Ask yourself if these fees make sense for your situation. If you don’t have much debt, your fees may just increase the total amount of payments you have to deal with each month.

Getting Started

Now that you’ve selected an agency, you’ll have to provide the counselor with information regarding your income, debts, and expenses. Based on these data, your counselor will develop and negotiate a debt repayment plan. Typically, the late fees and other penalties can be reduced or eliminated. Interest rates are usually lowered as well.

Instead of individual payments to your creditors, you’ll make a single payment to the credit-counseling agency. The agency will then make payments to your creditors according to your debt repayment plan.

Additional Items to Consider

• Allow yourself to take your time. While there’s no point in wasting time, there’s no need to feel pressured, either. You should spend some time finding your credit counselor, to be sure you have the best one for you.
• Counseling is usually only for unsecured debts. Your debt management plan will usually only cover things like credit cards, or debt without collateral. So your house and car payments would be unlikely to be included. Be sure to ask.
• Most plans take 30-60 months to complete. During that time, you will likely be required to refrain from applying for additional credit or creating any additional debt.
• Get regular statements. Ensure you’re getting regular statements showing how much money is being paid to whom.

Credit counseling isn’t for everyone, but if you have a serious debt challenge that you can’t resolve on your own, you may find this option beneficial. Start asking friends for referrals and begin your search today. The sooner you begin actively dealing with the situation, the faster you’ll feel empowered to take control of your financial life.