Credit Counseling and the Different Organizations on Counseling
How to pick a credit counselor
Do these questions or statements sound familiar? Are you living from pay check to pay check? Are you having trouble with your creditor? Are you having problems with budgeting and even setting aside money for your retirement? If they are familiar to you, then you may need the counseling services of a credit counselor. There are plenty of nonprofit credit counseling organizations to help you out. However, you need to be aware that though these organizations are non–profit, it does not mean that their services are for free or cheap or even legitimate. Actually, there are organizations that have exorbitant fees that are hidden in the form of voluntary contributions, which can only deepen the debtor’s financial problem.
A lot of credit counselors can be found online, via local offices or can be reached via phone. However, it is best to choose a counseling service that you can talk to face to face, if possible. There are plenty of nonprofit credit counseling programs inside military bases, universities, housing authorities, credit unions and even the US Cooperative Extension Service and its branches. Another good source of information and referrals are your family, friends, financial institution and local consumer protection agency.
How to Choose a Credit Counseling Service or Organization
A good credit counseling organization offers its reputable services regarding developing a budget, management of your debt and assets, plus offering of workshops and educational materials for free. The organization’s counselors are owners of certificates and are well trained on the area of debt management, consumer credit, budgeting and asset management. You need to personally discuss with your counselor your entire financial situation, which the latter would explain to you further the state of your financial condition and your counselor will help you build a personalized strategy to get out of your financial crisis. During your first consultation, it generally runs for about an hour with options for follow up appointments afterwards.
A dependable credit counseling service provider, usually gives you free information regarding their services and about its company without further asking for your financial data or status. However, if the service provider does exactly that, then you are better off looking for another credit counseling agency.
When you have already come up with a record of possible counseling services, the next thing to do is to check the agencies out with your local consumer protection agency, Better Business Bureau or state Attorney General. You can ask these offices regarding the record of agencies you have collated if such an agency ever had customer complaints. But, you also have to bear in mind that absence of such complaints, instantly makes it a legitimate credit counseling agency. Your next step is to have a one on one talk with your list of agencies left.
Questions You Need to Ask
In order to select which counseling agency or counselor is best, here are some questions to aid you.
What are the services being offered?
Choose agencies that proffer a wide range of services such as classes or workshops on savings management, budget counseling and debt management classes. Run away from credit counseling agencies that offers debt management plans at once, without even looking further into your financial situation.
Does the counseling agency offer free information and educational materials?
Never select agencies that have a fee on their information.
Know more about the agency’s payment terms
You must have a price estimate from the agency and preferably, in writing.
If you are not able to pay or afford to make contributions, what should you do?
If the agency is not willing to help you just because you don’t have money to pay them or make a contribution, then better look for help elsewhere.
Will the agency make a written and formal contract?
You have to ensure that anything you have talked about should be put into writing. Further, do not sign immediately any paperwork, read it first!
Ask about the qualifications of the agency’s counselors, their accreditation or certification by an independent organization and how these counselors were trained.
Make use of the services of an agency whose counselors were trained and accredited by a different and independent organization.
Ask about how the agency’s counselors are being paid. Is their pay based on the number of people who avail of their services?
When the answer to this question is a yes, then you are better off with another agency.
Debt Management Plan
When your money problems arise from your inability to repay debts or you just simply owe a lot of money from your creditors, then you may be recommended by your credit counselor to sign up for a debt management plan. One should know that, a DMP per se does not mean that you have already gone credit counseling. Further, not all people with debts are suitable with DMPs. One should only contemplate registering for a DMP when one has thoroughly conferred his or her financial problem with a credit counselor. The credit counselor should have spent much time analyzing your financial situation and formulating personalized plans on your asset management. And when a DMP is right for your situation, you will be taught on money management skills and on budgeting by your credit counselor.
The DMP Procedure
In the course of a DMP, which usually last for 24 months, you will be sending money to your credit counseling agency on a monthly basis. The money will then be used to pay for your unsecured debts such as student loans, credit card bills and medical bills. The payment will be based on the payment plan you and your counselor have drafted, along with your creditors. The interest of your bills may be lowered, fees and interests waived by your creditors, but you also need to countercheck with your creditors regarding this in order to check your credit counseling agency’s propositions, if they tally. In order for your DMP to be successful, you have to be consistent with your payments and deposit the payments in a timely manner. You can also inquire with your counselor regarding the length of the plan. Usually, you will also be required not to make use or apply for other loans while partaking in the DMP.
Is DMP Suitable to you?
When you are mulling over partaking in a DMP, here are some additional questions you need to ask yourself.
Is my only option a DMP? Will you still give me continuing advice regardless of my enrollment to a DMP program?
When the credit counseling agency only offers a DMP service, it is best that you look for another agency. Because there are agencies that will give you continued help on budget creation and helping you acquire skills on money management.
How does your organization deal with a DMP? How can you ensure that my creditors are paid on the due date and applicable billing cycle?
If for example that a DMP is suitable to your situation, then choose the credit counseling agency that will pay your creditors before the due date falls and on the correct billing cycle.
How do you decide my monthly payment due? What if the amount set, is beyond my financial capacity?
The only reasonable advice here is not to sign up for a DMP if you don’t have enough money to pay for the monthly dues.
How do I access information on my accounts? How often can I avail of this? Can I retrieve information online or via a phone call?
You have to make sure that the agency is agreeable to giving you comprehensive and frequent information regarding your account status.
Do you have the capability to request my creditors to do away with their interests, late fees and charges?
When the answer to this question is yes, you need to check the statement of your credit counseling agency with your creditors, in order to know its validity and correctness. Further, you need to ask with your creditors how long you have to be on the plan for these waivers of fees to set in.
Are there debts that are not included in the DMP?
You have to know this because if there are debts of yours that is not included in the DMP, then you will be paying it on your own and separately.
Is there an upfront payment to the creditors before they can accept the suggested payment scheme?
There are creditors that require upfront payments from your credit counselor before they are going to entertain your DMP. If your credit counselor informs you so, then you need to further verify this by calling your creditor.
Will an enrollment into a DMP affect my Credit?
There will be accurate negative information on your credit report, which usually stays there for seven years. You have to be wary of organizations that declare that they can eradicate accurate negative information in your credit report; because there is no way that you can do this legally.
Is there a way to ask my creditors to re-age my accounts, to make it look more current? If this can be done, what is the number of payments needed for re-aging to be done?
Even if your account can be made to look current, you cannot wipe out the fact from your credit report that you have had payment delinquencies.
Making a DMP Work Out for the Best
Here are some important steps that will help you get the most benefits from your DMP without falling further into debt.You need to continue paying your bills from your creditors, even during the processing of your DMP application, or until you have been approved because if you fail to pay, a lot of charges and interests can be added to your account. Further adding negative information in your credit report.
- You need to contact your creditors regarding the approval of your DMP plan, before you start paying your credit counseling agency for the DMP.
- Again, ensure that your credit counseling agency pays your creditors before the due date, because timely payments will avoid additional charges added to your account.
- You need to check and verify that your payments have been received by your creditors via the monthly statements of your account from your creditor.
-If it is included in your DMP that at a certain point your creditors will waive charges and fees, then you have to check your statement of accounts if this is carried out.
Programs on Debt Negotiation
Debt negotiation is another service that is entirely different from a Debt Management Plan (DMP or Credit counseling. Debt negotiation is very chancy and you can suffer from a long standing negative impact on your credit report, especially on your capacity to obtain credit. This is the reason why a lot of states have various laws to govern and regulate debt negotiating companies and their services.
Claims of Debt Negotiation Companies
Many of these Debt Negotiating Companies assert that their services are non profit. Usually they also assert that they can negotiate your unsecured debt, almost always credit card debts, to be paid off for just 10 to 50 percent of your balance. Take for example, if you have a credit card debt of $10,000 the debt negotiating company can have it arranged that you will only pay between the range of $1,000 to $5,000 and the debt will be considered paid.
These companies also sell their services as a substitute for bankruptcy. Sometimes they also assert that with the help of their services you will experience only a small negative impact or none at all, with regards your capability to apply for a credit in the future. Further, that these companies can delete negative information on your credit report once you have completed the program on debt negotiation. Aside from this, negotiating companies may advise you to cease remitting payments to your creditors, but instead channel it through them.
Truth about Debt Negotiation Companies
You cannot guarantee the legitimacy of a debt negotiation company by its non profit description. Further, there is also no assurance that a creditor will agree to receive a partial amount in full payment for a genuine debt. As a matter of fact, when you stop paying your credit card dues, it begins to incur additional charges such as late payment fees and other additional interests and charges. This can easily make your initial debt to double or triple. Further, your debt negotiating company will charge you with fees for their services, like a monthly service fee and a percentage fee of the amount that you have saved from the debt payment.
Your creditors are not obliged to concede to the dealings regarding your debt; however your creditors are legally obliged to give accurate data to credit reporting agencies, like your delinquency or nonpayment of monthly dues. In your credit report, this is recorded as a negative entry. Plus, in particular situations, your creditors have the right to file legal actions against you in order to get the money you owe them. Your creditors will likely have the right to garnish your salary or place a lien on your house. Lastly, the IRS can contemplate on using the forgiven debt as part of your taxable income.
Tips to Scams
Avoid debt negotiation companies that do the following:
- promises to get rid of your unsecured debt
- guarantees that you will only pay a very minimal amount for your unsecured debt
- asserts that they can get rid of your looming bankruptcy
- stipulates a certain percentage from your savings as payment
- compels you to pay a considerable amount on monthly service charges
- advises you to cease your payments or communication with your creditors
- demands that you channel to them your monthly payments, instead of your creditor
- asserts that your creditors cannot file a legal action on you regarding nonpayment of unsecured debts
- assures you that you will not get a negative rating on your credit report when using their service
- emphasizes that they can erase any accurate negative information in your credit report
When you have decided that you are going to make use of the services of a debt negotiation company, make sure to check out the company’s standing with your state Attorney General, Better Business Bureau or local consumer protection agency. These offices will help you confirm whether the debt negotiating company you are going to choose is of good standing or not. And your last question is to confirm with the state Attorney General if the Debt Negotiating Company you are eyeing is licensed to work in your state.
