Are you being bombarded with ads from agencies wanting to help you out of a debt jam? Ignore them. Read this instead.
If you’re overwhelmed by debt and can barely make even a minimum payment on your credit cards, there’s free help out there. Just be careful when you look for it.
Here’s this week’s reader question:
I keep getting these advertisements — the latest says it’s from the Department of Housing and Urban Renewal with a Washington, D.C., address — that offer to “provide important information on how to lower your credit card interest rates and reduce monthly payments.” My question is: Is there truth behind all the recent bids to assist me, at no cost and no fees?
Anything that sounds too good to be true, probably is — right?
First bit of advice: When you’re in debt trouble, you’d do well to ignore ads, especially the kind with lots of capital letters and exclamation points.
Anyone claiming to represent a government agency or making bold claims shouldn’t be trusted. Think about it: Why would the Department of Housing be helping with credit card debt? Plus, a quick web search will reveal there’s no “Department of Housing and Urban Renewal.”
The good news: There are reputable agencies out there, many providing free help. The trick is finding those who want to help you and not themselves.
Here’s a recent TV news story I did about finding help. Check it out, then read on.
Finding help the right way
Decades ago, the first TV story I ever did was about credit counseling. Since that time, I’ve been intimately involved in this industry, serving on the boards of two credit counseling agencies and providing educational materials to many others.
While there are lots of shady players in this industry, there’s no shortage of good ones. We’ve partnered with some who will help you right now. You can find them by clicking here. But whether you use our partners or not, you should know how these agencies work and what to look for. Here’s a checklist:
1. Is the agency accredited?
This is one of the first things you should consider before moving forward with a credit counseling agency. Although most are nonprofit, you should not simply select the first agency you run across. A leading source of accreditation in the industry is the Council on Accreditation (COA). The National Foundation for Credit Counseling requires all of its members to have COA accreditation. The Association of Independent Consumer Credit Counseling Agencies also requires its members to be accredited by the COA or one of two other organizations.
Next, the Federal Trade Commission urges you to check the agencies you are interested in with your state’s attorney general and local consumer protection agency. Your state may also require credit counseling agencies to register with the state. If that’s required, have they done so?
The FTC also says:
A 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 a firm doesn’t do that, consider it a red flag and go elsewhere for help.
2. How will they help you?
Credit counselors can provide lots of information and advice on regaining control of your finances, including helping you establish a budget. All this advice should be free. If your situation warrants it, they may suggest a paid service called a debt management plan, or DMP.
When you enroll in a DMP, the agency steps between you and your creditors. They contact your creditors and may be able to have some interest rates reduced and fees waived. They’ll look at your income and expenses, then arrange a single monthly payment based on what you can afford, which could be significantly less than the total of the payments you’re making now. You’ll send that payment monthly to the agency, and they’ll divide it among your creditors.
Typical DMPs last about four years. Complete it successfully, and you’ll be debt-free. Note, however, you’ll be asked to stop using credit cards until the plan is complete.
3. What effect will their services have on your credit score?
Seeking advice from a credit counseling agency will not damage your credit score, nor will entering into a DMP. That’s not to say some creditors won’t enjoy seeing this on your credit history, and it will show up. But if you’re already in a situation where you’re paying bills late, this probably isn’t your greatest concern.
4. What are the fees?
As noted above, advice should always be free. If you agree to enter a DMP, you’ll pay a monthly fee, but it should not be more than $50. And even that fee can be waived for those unable to afford it.
Another warning: If an agency is quick to direct you to a debt management plan without going over the details of your situation and considering other options first, that’s a bad sign. There’s a reason this is called credit “counseling.” They should sound like a counselor, not a used-car salesman.
5. Do they offer additional resources?
The point of credit counseling is to make your debt more manageable and help you establish more sound financial habits. Many agencies offer personal finance advice and courses covering topics like budgeting, saving and debt management. This should not come with a price tag.
7. Is there a contract?
Make sure that every aspect of the service is included in a written contract. Read it before you sign.
8. How do they promote themselves?
Reputable nonprofit credit counseling agencies normally don’t have huge advertising budgets and don’t make unrealistic claims. As Cheryl said, “Anything that sounds too good to be true, probably is — right?” Right, Cheryl.
Whatever you do, do something
The most common mistake made by many with debt issues is waiting too long to get help. This is natural. We blame ourselves, become embarrassed or ashamed, then bury our heads in the sand. This serves only to add to your stress and make the ultimate solution more difficult.
If you have a debt problem, you’re more the rule than the exception. You’ve got nothing to be embarrassed about. There’s someone who can help, and they’re waiting for your call right now. It will cost you nothing and take a monster weight off your shoulders. If you need help, or even think you might, click here or call somewhere. You’ll be glad you did.
Have you been through the credit counseling process? Share your experiences in the comments below or on our Facebook page.
Got a question you’d like answered?
You can ask a question simply by hitting “reply” to our email newsletter. If you’re not subscribed, fix that right now by clicking here. The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. If you’ve got some time to kill, you can learn more about me here.