Nonprofit Credit Counseling Agencies - Think Twice Before You Leap

Amy Cooper-Arnold

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Consumers that deal with credit card debt sometimes find it necessary to a get a little outside help. Consumer credit counseling agencies are a great, free resource for consumers needing a little extra help with budgeting, planning, or even setting up a debt repayment plan, otherwise known as a Debt Management Plan (DMP).

But you may be wondering if you really need help. Here are some warning signs to help you decide if it’s time to start investigating a non-profit consumer credit counseling agency.

  • Your own efforts at working out a reasonable repayment plan have failed.
  • Based on your current budget, it will take longer than five years to repay your credit card debt.
  • Your total monthly debt payments, not including mortgage and car, equal 1/4 – 1/2 of your take-home pay.
  • Your are unable to pay even the minimum amounts due on each credit card every month.
  • You are consistently late with one or more regular bills other than credit cards, including utility and auto bills.
  • Creditors and collection agencies frequently call you.
  • You and your spouse fight about debt and financial issues.
  • You don’t know if you can really afford to purchase something.
  • Know What to Look for in a Credit Counseling Agency

    With the assortment of agencies trying to get your business it can be difficult to know which one is best. First things first, look for an agency that is non-profit and accredited with either the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

    It’s also a good idea to contact the local Better Business Bureau to see if any complaints have been filed against the company and how the issue was resolved. Similarly, checking our active credit forum for posts regarding the company is a good idea.

    Finally, make sure they are licensed to offer services in your state and that they don’t require detailed information about your situation before sending free informational material about the services they offer.

    Know What They Offer

    A reputable credit counseling agency offers many wonderful services including assistance from a certified counselor who will help you create a personalized budget and possibly a debt management plan (DMP); working with creditors to lower or eliminate interest, finance charges, late payment penalties, and other types of fees; distributing payments to each of your creditors enrolled in your DMP; and, most importantly, giving you lots of free educational materials.

    Know How They Will Help You

    The first step a credible counselor will take is thoroughly analyzing your financial situation; plan for an hour long initial visit and several follow-up sessions. Then, based on what they see, they can set up a plan to help you both in the short-term and the long-term.

    Sometimes long-term help involves a debt management plan (DMP), but not necessarily. If the agency won’t continue providing budget counseling unless you sign up for a DMP, look elsewhere.

    Another warning sign to look elsewhere is the unrealistic promise of erasing your credit history. No one can erase your credit history. Under the Fair Credit Reporting Act, accurate information about your accounts stays on your report for up to seven years.

    Know About Their Fees

    Reputable credit counseling agencies generally offer budget services for free, but they will charge fees for their debt management plans (DMPs). The key is to find an agency that has reasonable fees. Linda Tucker, Director of Education and Marketing for Consumer Credit Counseling Service in North Little Rock, Arkansas, says a monthly rate of $15-$25 is a reasonable amount to pay and $50 is on the high end. Sometimes fees depend on the market, so if you live in a state like California or New York you may end up paying on the higher end of the scale. If you can’t afford their fee even if it is reasonable, ask the agency what type of help they can still offer— most good agencies won’t turn you away.

    Know About Their Counselors

    Find out what type of training the agency’s counselors receive. Ideally, they should be both trained and accredited by an outside source completely unaffiliated with the agency.

    Know How Employees are Paid

    Don't be too embarrassed to ask if their employees are paid a salary or on commission. If an employee is paid on commission, then they are more likely to pressure you into a DMP because they are probably watching out for their pocket book, not yours. If this is the case, look elsewhere!

    Know About Their Funding

    Non-profit agencies have other sources of funding than just the fees paid by their clients. Ask from what other sources they receive funding and who regulates and audits their operations. Are they certified by the International Standard of Operations (ISO compliant)?

    Know About Their DMP

    If, after careful analysis of your finances, you and your credit counselor decide a DMP is the best next step, you will need to know what to look for in a good program. Look for a program that pays your creditors before the due date. If the agency makes late payments or misses payments, it will only hurt your credit history.

    Also make sure you will continue receiving monthly statements from either your creditors or the agency. Since it’s your credit history on the line, it’s important to know the interest rate, payments, and balances for each of your creditors.

    Know How Each Creditor is Involved

    Sometimes not all creditors decide to participate in the DMP. It’s important to know which ones don’t sign up so you can continue making payments to them on your own.

    During the process of enrolling into the program it’s also important to keep paying your creditors so you are not charged late fees and penalties. Contact each creditor to confirm they have accepted the terms of the proposed plan or to verify that upfront payments are required. Once everything is confirmed, it’s okay to start sending your payment directly to the credit counseling agency.

    Know the Difference Between a DMP and Debt Settlement

    One final note— a DMP is not the same thing as debt settlement or debt negotiation, which is very controversial and much riskier. Debt settlement/negotiation focuses on making a deal with creditors to forgive a portion of the debt.

    Gerri Detweiler, founder of and author of The Ultimate Credit Handbook, suggests debt settlement is most appropriate for those who are not able to make the payments of a DMP and who either can’t or won’t file for bankruptcy. But not all experts agree on the value of debt settlement, so if you do choose it as an option do your research and proceed with caution.

    We sincerely hope that these ten tips will help you to decide if a credit counseling service is right for you and, if so, to help you find a good counseling agency that meets your specific needs. There are many less than desirable services out there, so a little bit of research on the front end will be time well spent. Good luck!

    Amy L. Cooper-Arnold has been a staff writer for since 2004. Her articles have been republished by respected publications throughout the country, including Young Money Magazine, E/The Environmental Magazine and Amy recently graduated with honors from Austin Peay Univ. and is currently taking graduate-level classes.


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