Some credit counseling firms function like social service agencies and provide face-to-face counseling to clients, while others use high-tech communications systems and payment systems to deliver services. Two large groups of agencies provide the bulk of counseling services are the National Foundation for Credit Counseling (NFCC), a network of Consumer Credit Counseling Service (CCCS) offices, and the Association of Independent Credit Counseling Agencies. There are also some heavily advertised independent agencies that belong to neither trade group.
When consumers enroll in a credit counseling agency debt management plan, they typically make one monthly payment to the agency that is disbursed to their creditors. Involvement with a credit counseling agency is noted in a person’s credit file, but if they already have negative information (e.g., late payments) recorded, it probably won’t worsen their credit score. Credit counselors can also help their clients design a spending plan (budget) to live within their means.
Below is some information about how to select a credit counseling agency:
• Investigate the Company: Don’t make a decision based solely on radio or television advertising. Ask the firm to send you written materials about its management, how long it has been in business, and, specifically, what services are provided before you commit to making payments. It may be wise to contact the Better Business Bureau, state attorney general's office, or a local consumer protection office regarding any complaint history against the agency. You may also want to ask about how their services are funded.
• Do Not Pay Before Service Is Received: No legitimate counseling agency charges large mandatory upfront fees. A nominal application fee (e.g., $35 to $75), however, may be charged, sometimes on a sliding scale according to income, as well as modest monthly charges (often not more than $40).
• Ask How You Can Track Payments to Creditors: One of the biggest complaints about credit counseling agencies is that they are slow in paying creditors. This results in late fees and letters requesting payment from creditors. One key question to ask is, “How will I know that my payment to you will be made to my creditors promptly?” The best credit counseling agencies make payments to creditors weekly (versus monthly) and provide consumers the ability to track their payments online.
• Ask about Counselor Training: Check the training and experience of an agency’s credit counselors. NFCC counselors, for example, must pass a certification exam and participate in ongoing training.
• Know What Is Expected: Many credit counseling agencies will require their clients to surrender their credit cards so as not to incur further debt.
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