Choosing a Credit Counselor
paycheck to paycheck? Worried about debt collectors? Cant
seem to develop a workable budget, let alone save money for retirement?
If this sounds familiar, you may want to consider the services of
a credit counseling agency. Usually nonprofit, these agencies work
with you to solve your financial problems sometimes for free.
Credit counseling agencies may offer educational materials and workshops,
or help you develop a budget. Many agencies offer services nationwide
through local offices or the Internet. Look under "credit counseling"
in your telephone directory or your Internet search engine.
If your financial difficulties arise from too much debt or an inability
to repay your debts, a credit counseling agency may work out a Debt
Repayment Plan for you. In these plans, you deposit money each month
with the credit counseling agency. Your deposits are used to pay
your creditors according to a payment schedule the counselor develops
of the repayment plan, you may have to agree not to apply for
or use any additional credit while youre participating
in the program. A successful repayment plan requires you to make
regular, timely payments, and could take 48 months or longer to
complete. Some credit counseling agencies charge little or nothing
for managing the plan; others charge a monthly fee that could add
up to a significant charge over time.
repayment plan does not erase your credit history. Under the Fair
Credit Reporting Act, accurate information about your accounts can
stay on your credit report for up to seven years. A bankruptcy can
stay on your report for ten years. In addition, your creditors will
continue to report information about accounts that are handled through
a debt repayment plan. For example, creditors may report that an
account is in financial counseling, that payments have been missed,
or that there are write-offs or other concessions. But a demonstrated
pattern of timely payments should help you get credit in the future.
and Unsecured Debt
Your debts are either secured or unsecured. 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, the lender can repossess
your car or foreclose on your house. Unsecured debts are not tied
to any asset. Examples include most credit card debt, bills for
medical care, signature loans and debts for other types of services.
Debt repayment plans usually cover only your unsecured debt. If
your secured debts are not included in the plan, you must continue
to make payments to these creditors directly.
you borrow money to buy a car, the lender generally holds the title
to the car until the debt is paid in full. Most automobile financing
agreements allow the lender to repossess your car if you stop making
payments. No notice is required. If your car is repossessed, you
may have to pay the full balance due on the loan, as well as towing
and storage costs, to get it back. If not, the lender may sell the
car, perhaps for less than what you still owe. You still are responsible
for the difference. If you fall behind with your car payments, consider
working with the holder of the title of your car to sell it yourself.
Pay off the debt to avoid repossession and a negative entry on your
fall behind on your mortgage, contact your lender immediately to
avoid foreclosure. Most lenders will work with you if they believe
youre 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, you may have to pay extra toward
the past due total. Lenders may agree to change the terms of the
mortgage by extending the repayment period to reduce the monthly
payments. Ask about any fees charged for these changes, and consider
how much they add to the total cost of your loan.
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 having
trouble making mortgage payments. Call the local office of the Department
of Housing and Urban Development (HUD) or the housing authority
in your state, city, or county for help in finding a housing counseling
agency near you.
an Agency: Questions to Ask
If you want to work with a credit counseling agency, interview several.
Here are some questions to ask. Check with your state Attorney General,
local consumer protection agency and the Better Business Bureau
to find out if consumers have filed complaints about the provider
you are considering. Any reputable credit counseling agency should
send you free information about itself and the services it provides
without requiring you to provide any details about your situation.
If not, consider that a red flag and go elsewhere for help.
services do you offer?
Do you have educational materials? If so, will you send them to
me? Are they free? Can I access them on the Internet?
In addition to helping me solve my immediate problem, will you help
me develop a plan for avoiding problems in the future?
What are your fees? Do I have to pay anything before you can help
me? Are there monthly fees? Whats the basis for the fees?
What is the source of your funding?
Will I have a formal written agreement or contract with you?
How soon can you take my case?
Who regulates, oversees and/or licenses your agency? Is your agency
Will I work with one counselor or several?
What are the qualifications of your counselors? Are they accredited
or certified? If not, how are they trained?
What assurance do I have that information about me (including my
address and phone number) will be kept confidential?
do I have to owe to use your services?
How do you determine the amount of my payment? What happens if this
is more than I can afford?
How does your debt repayment plan work? How will I know my creditors
have received payments? Is client money put in a separate account
from operating funds?
How often can I get status reports on my accounts? Can I get access
to my accounts online or by phone?
Can you get my creditors to lower or eliminate interest and finance
charges or waive late fees?
Is a debt repayment plan my only option?
What if I cant maintain the agreed-upon plan?
What debts will be excluded from the debt repayment plan?
Will you help me plan for payment of these debts?
Who will help me if I have problems with my accounts or creditors?
How secure is the information I provide to you?