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Finding a Good Credit Counseling Service

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As you shop around for a credit counseling service, you may wish to consider the following questions.

What Fees Do Credit Counseling Services Charge?

Before you sign up for credit counseling services, it is important to learn what fees they charge and how those fees are paid. Avoid a service which charges large up-front fees. Don't be put off by a service which collects a commission from your credit card company or other creditors for managing your debt, but be wary of one which will take a big slice of your monthly payment to cover its commissions even before it services your debts.

Some services suggest that it is better to work with a service which charges you a large fee, rather than deriving the bulk of its fee from discounts and rebates from your creditors. Keep in mind that creditors work voluntarily with credit counseling and debt management companies, and are paying any fees or rebates voluntarily. Also, some firms which charge you a great deal of money will still attempt to collect rebates from your creditors to fatten their fees.

You should request that your credit counseling service provide you with monthly statements for their debt management plan, reflecting the amount you paid in, the dates and amounts they paid to each of your creditors, and the amount of their fees.

Where Are Their Offices?

Some credit counseling services operate at a distance, while others make a point of meeting with debtors in a local office. You won't necessarily save money by using a service which doesn't offer a local office, and sometimes it is easier to make and stick to a budget when you are working with somebody face-to-face. Also, local credit counseling agencies sometimes offer educational programs or classes, which may benefit you when you are deciding if you need credit counseling services, and may provide further assistance while you are participating in debt management.

It is okay to work with a credit counseling service over the phone, particularly if you are embarrassed about meeting your credit counselor in person, but you should take care to verify that any service without a local office is in fact legitimate.

Who Is Your Counselor?

With some services, to the extent possible you will receive services through a specific credit counselor assigned to your case. With others, you will get whomever happens to be available at the time of your call or appointment. If you want a more personal relationship with your credit counselor, you may wish to confirm that your service will assign you to a specific counselor, and that you are comfortable with the counselor assigned to your file.

What Services Do They Offer?

While a typical credit counseling service offers budgeting assistance and debt management services, most established services also offer educational programs. These may take the form of classes and seminars, self-study programs, and Internet programs. Try to work with a service which will do more than simply set up a repayment plan, but will help educate, support and guide you through the resolution of your debts. If educational materials or programs are offered, ask if they are included in the fees you are already paying or if there are additional costs or fees.

What Promises Do They Make?

If a service is promising to resolve your debts for pennies on the dollar, suggests that they can "repair" your credit by removing accurate information from your credit report, or promises you that its debt management program will not affect your credit rating, be skeptical of the service. No credible or ethical credit counseling agency will make that type of promise.

What Accreditations Do They Have?

It is wise to seek credit counseling through a service accredited by the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. It is far less likely that an accredited organization will charge excessive fees or try to take advantage of you, than it is for an organization which is not accredited.

Will Your Creditors Cooperate?

In many cases, creditors are happy to work with credit counselors, as they want to help their debtors stay out of bankruptcy. An "unsecured debt" such as a credit card debt is typically discharged through the bankruptcy process, leaving the creditor with nothing. However, if it turns out that few of your creditors are willing to cooperate with your credit counselor, no matter how good the service, you may obtain little or no benefit from utilizing its debt management services.

Thus, when you approach a credit counselor, you should be prepared to ask what its experiences have been with your more significant creditors. You may be able to find a service which has a better track record with your creditors, and is thus more likely to be able to negotiate a repayment plan that is in your financial interest.

If certain creditors are not included in your debt management plan, you should make sure that you have a clear understanding of who those creditors are. You will be responsible to continue to make payments to those creditors on your own.

When Are Creditors Paid?

You should try to work with a service which takes into account both when you are paid, and when your bills are due. Some services try to pay all creditors for all of their clients on a single date each month. This can cause them to pay some bills almost a month early, and in some circumstances to make late payment on other bills they manage.

Can You Make Payments Electronically?

If your debt management payments can be automatically withdrawn from your bank account each month, it is easier to keep on track with your program. While you still have to make sure that your bank balance is sufficient to cover your payment, with electronic transfer you are far less likely to make late payments or miss payments, and are thus more likely to successfully complete the program.

What Happens If You Have Difficulties?

Given that many people have difficulty sticking with a debt management program, or encounter sudden financial emergencies during the course of a debt repayment plan, it makes sense to ask up front what will happen if you miss a payment, are late with a payment, or may not be able to make your full contribution.