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Seeking Credit Counseling Services for Your Debt

couples credit counseling session Getting out of debt is hard. For many, turning to professional help offers the needed support to get them on the road to success. When considering this route, remember the earlier the better. Reaching out for help before it is too late will help those involved help you in the best manner.

There are all sorts of debt management help out there today, and navigating it can be difficult. Below are some options and things to watch for when thinking of turning to a pro.

Signs you should consider professional help:

Credit Card payments are rising while income is steady or decreasing.
Unable to even meet minimum payment.
Using one credit card to make payments on another.
You are at or very close to the limit on all your credit cards.
You add more debt than you pay off each month.
You are unsure how much you owe, and afraid to find out.
You have received phone calls or letters about delinquent bill payments.
You are buying everyday things such as groceries with credit cards.
You are dipping into savings or your IRA to pay your monthly bills.
You use your credit card not as convenience but by necessity.

Credit Counseling

Most of the services offered fall under the umbrella of ‘credit counseling’. Credit counseling is a custom tailored plan to provide guidance and support for people who need help getting out of debt. The goal most times is to avoid bankruptcy, and provide education on financial management to help avoid the same problem again. Many of these services also negotiate with a person’s creditors on their behalf to reduce interest or rearrange repayment structures.

Debt Management Program

“Debt Management Program (or Plan)” is another phrase often mentioned when discussing professional debt management. This is not separate from credit counseling, but a tool used under the same umbrella. A DMP is a workout proposal usually made by your credit counselor agreed to by the creditors. The DMP is the money left over after developing an accurate budget with your counselor. The disposable income is directed towards the credit counselor, who in turn allocates it to the various creditors. The credit counselor acts as the intermediary, to help communications from both ends.

Debt Settlement

“Debt Settlement” is the final term often discussed within this discussion. This is a process by which a large, one-time payment is made for forgiveness of remaining debt. Although the thought of paying back less than is owed is tempting, there are no free lunches. Any amount forgiven is viewed as taxable income by the IRS, which can come back to haunt you, unless you file for bankruptcy. In addition, it will show up on your credit report for some years, and make it very unlikely a lender will approve you for an affordable loan during that time.

Shopping Around

As with anything else, it pays to comparison shop. There are many companies offering credit counseling, and finding the best deal can take a little research. But don’t be fooled if the company claims to be ‘nonprofit’. This often can be misleading, as these services providers will oftentimes actually charge higher fees than other ‘for profit’ businesses.

According to the Federal Trade Commission, the following questions should be asked to any prospective credit counselor:

What services do you offer?
Will you help me develop a plan for avoiding problems in the future?
What are your fees?
What if I can’t afford to pay your fees?
What qualifications do your counselors have? Are they accredited or certified by an outside organization? What training do they receive?
What do you do to keep information about me (including my address, phone number, and financial information) confidential and secure?
How are your employees paid? Are they paid more if I sign up for certain services, if I pay a fee, or if I make a contribution to your organization?

Click here for a list of approved credit counseling by state.

Have you used any debt management or credit counseling services in recent years? If so, did it help? We’d love it if you’d briefly share your experience with us and others seeking professional help, in the comments below.

Thanks!

Next we cover the ins and outs of bankruptcy…