If you find yourself in a tough financial situation and are considering seeking the help of a professional credit counselor, there may be good news for you.
Since the credit crunch of 2008, and the current recession have led to historic bankruptcy and foreclosure rates, help is a little easier to come by. That’s the good part of this financial mess we are in – the social stigma has been removed. It’s now easier than ever to talk about money problems because it seems like everyone has them.
Here are 10 tips to help you talk to your credit counselor.
1. Determine what services you need.
Terms like credit counseling and debt counseling cover a wide range of services, but they can be broken down into 2 broad categories: 1. counseling and education, 2. debt reduction or negotiation. Credit counselors typically offer the counseling and education services, while debt management and debt settlement agencies offer the latter. You also need to be more wary when dealing with debt management and debt settlement agencies in general as they can harm your credit score and often simply don’t work
2. Make sure the counselor meets the legal requirements.
If you’re filing chapter 7 or 13 bankruptcy, a 2005 law requires you to complete an instructional course in personal finance management before your debts can be discharged. Before you sign on with a credit counseling agency, be sure they’re on the approved list of agencies to cover the legal requirements.
3. Verify they are the right kind of nonprofit status.
The term “nonprofit” is a bit like the term “organic” – everyone has an idea of what it means to them, but there are loose (if any) restrictions on who can use the term. Make sure your nonprofit counseling agency is listed under Section 501(c)(3) of the Internal Revenue Service Code. You can check the listing at the IRS charities website.
4. Verify their accreditation.
The term “accredited” is a lot like organic and nonprofit (see above). Make sure the counselor is accredited with the National Foundation for Credit Counseling, or the Better Business Bureau.
5. Are all the counselors trained and certified?
An old, but effective trick in advertising is to imply that all members of an organization are professionally trained and certified while it may only be a small subset of those employed. Ask the pointed question: “Are all the counselors trained and certified?”, followed by “and what kind of training and certification is that?”
6. Get (and check) references.
Be sure to ask the agency directly, but also check on the Better Business Bureau website.
7. Find out how this will affect your credit score.
The truth of the matter is that your credit has already been hit by late payments and the like, but what you’re looking for from the counselor is an honest commitment to help you make the most of your current situation. If they promise to guarantee to clean your credit history, or make an everything for nothing kind of promise – run.
8. Know the costs.
It should be a simple, straightforward cost. If they start down a complex road of “possibilities” or a menu of fees and percentages – run. If they say they will hold your payments, and that you should stop paying your creditor yourself – run.
Legitimate nonprofit counselors will charge something less than $100 per hour for counseling, and some may be free! But if things seem too good to be true, it probably isn’t true.
9. If the price $0, or close to it – find out why.
Sometimes credit card and mortgage companies provide funding to counselors. This can be ok, but you should be made aware of it if this is the case. The important thing is that the counseling agency is working for you. If they seem to be giving advice that helps your creditors at your expense, then there may be a conflict of interest.
10. Make sure the service is what works for you.
Whether the counseling is done in person, over the phone or on the Internet doesn’t matter as long as it’s what works for you.
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