Understanding Credit Counseling Services

Credit counseling services have helped millions of people break the debt cycle. If you’re considering counseling, review these frequently asked questions to learn more about the credit industry and its practices.

Are All Credit Counseling Services Non-Profit?

Most are considered tax-exempt non-profit organizations, however not all of them are. Before you sign up with a service, verify that it’s not more interested in turning a profit than it is in helping you. Start by checking them out at the Department of Justice’s bankruptcy website and the Better Business Bureau. Remember, being non-profit doesn’t automatically make them legitimate.

Can They Help with All Debts?

For the most part, they can help you resolve any debt situation, but the various options aren’t available for all debts. Mortgages and student loans usually can’t be settled or entered into debt management programs. Student loans can be consolidated, however. You may also be able to reduce car loan interest through debt consolidation.

Medical bills and credit card bills are the easiest for credit counselors to deal with.

How Are Counseling Services Paid?

Most services are actually funded by contributions they receive from creditors. Many also receive a portion of the funds you pay into a debt management program. Review the organization’s website for a complete disclosure of their funding sources. If you can’t find one and they won’t provide the information to you, consider using a different service.

What Does It Cost?

Fees vary, depending on the services you need. The initial consultation should cost no more than $50. If you can’t afford to pay, many will provide some services for free. A debt management program often includes a one-time setup fee or a monthly maintenance fee. Debt settlement frequently includes high fees. Debt consolidation may involve a smaller fee, or you could attempt to consolidate on your own. Educational materials are often available free. Money management courses may be free or offered for a small fee.

Are Credit Counselors Licensed?

They must be licensed to operate in your state. Most are also certified to provide credit counseling. Before signing up with a service, ask if they’re licensed in your state and if certifications are current.

How Do I Know If I’m Being Scammed?

The fear of being scammed is one factor that keeps many people away from credit counseling. Most services are completely reputable and interested in helping you. As with any industry, there are a few bad apples, though. You may be dealing with a scammer if they:

refuse to send you any information before you meet with them
refuse to provide a written list of fees
pressure you to sign-up that day or risk losing their great offer
recommend a debt management plan before reviewing your finances
offer to settle debts for pennies on the dollar
offer to repair your credit for a fee
recommend that you stop paying on your debts
say they can cancel student loans or secured debts like mortgages
don’t provide budgeting or money management education.

Although it’s important to choose a credit counseling service carefully, you shouldn’t let fear or shame keep you from calling them. A good credit counseling service can help you resolve your debts and learn how to avoid creating new debt. If you’re not sure how to tackle your debts, contact a service for more information about your options.

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