Families must carefully consider if it makes sense to work with such a credit counselor, as much of this work can be done by the individual. Selecting a reputable, responsible organization is critical since some disreputable organizations prey on struggling families. Check out credit counselors with the state Attorney General, local consumer protection agency, or the Better Business Bureau.
Managing debt and building good credit can be challenging and there are some very good, well-known nonprofit and community organizations that can help couples get back on track. One organization is the National Foundation for Credit Counseling (NFCC) (www.nfcc.org). Programs like NFCC ask borrowers to turn over all their credit cards and for a $10 monthly fee and a check, NFCC will pay the debtor’s bills. By doing this, the counselors are able to negotiate and secure a lower interest rate than the borrower; thereby reducing the total loan amount and time required for payback. However, if both members of a couple with joint accounts do not agree to be involved, there is little that credit counseling can do for joint debt. Another drawback to this service is that in most cases, for seven years a borrower’s credit report will contain a line stating that he or she paid through NFCC. However, some credit companies view this as a positive move toward taking control of debt. Some credit counseling operations are financed by lenders and using them may have other consequences. And couples should be cautious that if it seems too good to be true, it probably is. Figure 5 presents the basic steps in acquiring credit counseling assistance.
Credit Counseling: What are the Steps?
If couples in difficult financial positions contact a credit counseling service, valuable advice can be available on specific financial situations as well as referrals to money management and credit education services. While each credit counseling agency may have different procedures to connect families to counselors, there are general steps that each follows.
- Pick a Reputable Counseling Agency—Financial educators recommend contacting an agency that is a member of the National Foundation for Credit Counseling (NFCC) or The Association of Independent Consumer Credit Counseling Agencies (AICCCA). Another option is to obtain a direct referral to a reputable counselor through a community service provider who may already be assisting or a local social services department. A reputable credit counseling agency will send free information about itself and its services without requiring the consumer to provide any personal financial details. The Better Business Bureau and the state Attorney General’s office should also be consulted. The FTC provides tips on choosing a credit counselor and avoiding untrustworthy organizations at: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm
- Set up an Appointment—Many credit agencies are part of national networks so the first step is to set up a user profile in their system. This can be done over the phone or on the internet. After this step, families are put in touch with a credit counselor if one is immediately available, a phone appointment is set up, or an appointment at a local agency who is a member of the network is made. During times when consumer spending is high such as the holidays, there may be a delay in getting an appointment.
- Talk to the Certified Credit Counselor—In an hour-long appointment that is free of charge, credit counselors will talk to families about the details of their debts and living expenses. Contacting a credit counselor for a free appointment does not ruin clients’ credit report so it is best to encourage accurate disclosure of debt and living expenses. Sometimes counselors are available through internet chats and e-mails to address specific questions.
- Decide on Customized Plan—At the end of a counseling session, the credit counselor will explore specific options that are available through their organization. Recommendations are made based on what debt couples face. Not all credit counseling agencies offer help with the full range of debt relief and credit repair options, some just specialize in particular debt relief options such as credit card consolidation. In this case, these agencies make referrals to other agencies that help deal with collection agencies or mortgage delinquency. It is likely that credit counselors will discuss education options to encourage healthy financial spending and credit options in the future.
SOURCE: Personal Communication, Consumer Credit Counseling Services.