Credit Basics: Working with Credit Counsilors

By StudentPlatinum.com

If you have tried to map out your own debt repayment plan and failed or if your credit status is in a severe situation with accounts that have been deemed 'in default' or “charged off” you may want to work with a consumer Credit Counseling agency.

These agencies work with you to understand basic budgeting concepts and to map out an overall payment plan.  If your situation is dire enough and it is determined that you are actually unable to pay your debt based on your current payment terms, then the credit counseling agency may recommend entering a debt management plan.  In this scenario, you are required to deposit money each month with the credit counseling agency and they pay your debts according to a payment schedule the counselor develops with you and your creditors. The idea is that the credit counseling agency will work with your creditors in an attempt to lower your interest rates and waive certain fees. 

Theoretically, there isn't much more that these credit counseling agencies can do for you that you cannot do yourself so the first thing to do is to get your credit report and your credit score to find out exactly where you stand. After that you may be better able to assess how much help you need, plus it's sometimes thought that creditors are more willing to accept lower payments and interest rates when approached by a credit counseling agency.

If you decide to go the route of a credit counseling agency…here's the BIG disclaimer:  Be aware of credit repair scams!  Unfortunately, there are many scam artists out there just waiting for your financial misfortune to fall into their lap. One tip we can give you is this: you should never have to pay up front for them to evaluate your situation and tell you if they can help you and how. If they want money up front to do this,, walk away!

Credit counseling is NOT free.  Although the agency should provide you with free information about the company and their services, without obtaining information about your financial situation, they typically charge about 20% of the total monthly payment that they negotiate with your creditors if you enter a debt management plan with them.

Here’s a list of things to do:

Access the National Foundation for Credit Counseling’s website for links to existing agencies.  It is up to you to check each agency out for legitimacy with your state Attorney General, local consumer protection agency, and Better Business Bureau. Once you are comfortable with your list of agencies, you will need to interview each one to narrow down to the agency that offers the best services that fit your needs.  During this interview process we urge you to ask lots of questions!  The more you understand, the less surprised you will be when your plan goes into motion.  Understand what the agency can do for you and what you'll pay for that service before signing any agreement. 

Here are some important questions:

• What services do you offer? A legitimate agency will offer a diverse range of services including budget counseling, as well as savings and debt management classes. Avoid organizations that push a debt management plan as your only option before they spend a significant amount of time analyzing your financial situation.
• Is your Agency licensed to offer your services in my state?
• Are your counselors trained & certified? If so, by whom? Try to use an organization whose counselors are trained by a non-affiliated party.
• What are your fees and how are your counselors compensated? Get a specific price quote in writing.  Make sure that the counselors are not paid via commission based on the services that you sign up for.

The bottom line is; be smart with your choices. Credit-counseling agencies make the point that being in a debt-management plan shows that you're dedicated to repaying your debts and that can be considered positive when creditors review your report. You need to be aware, however, that although this modified entry on your credit report appears more favorable, it is still a negative entry and will remain on your report for seven years from the date that it was first reported.