Questions to ask a for-profit or non-profit credit counseling company.
Each year, millions of Americans struggle to pay their bills and outstanding debt(s). If you do decide to approach a credit counselor, or explore a debt management or “settlement” program, below are several questions to ask the company before signing an agreement. Also listed, just as importantly, is what to look for in their answers. The more knowledge that someone has on the process will help ensure that the correct counselor is selected. This should also improve the chances to receive long term success.
Exactly what services do you provide?
A company saying they offer "debt counseling" or "credit counseling" is very vague. Those terms generally encompass a wide variety of possible programs as well as plans offered. Get the specifics on the services they offer and propose. However, do keep in mind that the two major categories. They are:
- (1) Professionals, including from non-profits that provide a variety of financial support. This includes budgeting, programs for getting out of debt and general financial education services, and these are normally called credit counselors. These non-profits can operate debt management plans. Good nonprofits credit counseling agencies offer more than just budgeting advice - they may help with credit card, medical and all your debt(s).
- (2) The second common category is companies that will help negotiate and aim for “elimination” of your debts and/or will actually take over making the payments for you in an escrow account. There are normally referred to as "debt counselors" or “ debt settlement companies”.
If you proceed with the second option, those require the most time to review the company and vigilance on your part to make sure you're getting the best service for your money. As dealing with a for profit company will inherently come with more risks. A combination of non-profit and for-profit options are here at local by state credit non-profit counselors with some national organizations listed too.
Can you provide references?
In addition to asking them this question, you will want to do some checking around on your own as well. Search the Internet. Contact the local Better Business Bureau. Search social network sites or blogs for feedback. If possible, track down actual references from people who have used the service or company. Maybe a friend, neighbor, or relative has used them. However, getting these actual references may be the most difficult.
Reputation matters. What do other people say about working with this organization?. If you can get any firsthand accounts of reasonable rates, good service, and successful programs, those should be given a lot of weight in making your decision. As a number of positive, independent reviews are very powerful. Look for verified reviews, not just testimonials on the organization’s own website. Check BBB.org and even go to your state’s attorney general website for major complaints/red flags.
Is your credit counseling organization accredited or certified by a national body?
Reputable nonprofit credit counseling agencies should be certified. Someone that offers any type of credit repair or debt reduction services should be listed by organizations like the National Foundation for Credit Counseling (NFCC) or Financial Counseling Association of America (FCAA). They should also be highly rated by the Better Business Bureau.
Certification from those groups ensures that counselors are trained and registered. It will also ensure they follow ethical standards as well as government regulations. Lastly certification will ensure the organization is audited for compliance and service quality. You want to work with someone who has formal training and understands debt, credit laws, and budgeting. Click here to find a listing of federal government accredited agencies by state. https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111.
What will happen to my credit rating?
A key here is them answering truthfully about the current impact you are facing and future impact. You need a realistic answer. As in all honesty, if you're late with paying your credit card bills or say mortgage, your FICO credit score may already be in the process of going down at the 3 reporting bureaus. The fact is it needs to, and will, go down if you are delinquent.
If any credit counseling company "guarantees" to wipe your credit clean and improve your score overnight, that should be a red flag. A company should be able to offer a commitment to help you slowly improve your credit scores, and manage your credit rating as best you can. A good counselor or debt organization should be able to offer you solid advice about what you can do without making unsustainable promises that your credit will magically be fixed.
Also, a while Debt Management Plan can help you pay off debt faster, it will generally also impact your future credit score as well as a negative way, especially if accounts are closed. Be sure you get full disclosure about how a DMP appears on your credit report and the pros/cons. Or if the organization can help you rebuild your credit scores too.
How much will I need to pay?
Nonprofit (if you use a non-profit agency) does not mean “free.” Some services (like setting up a DMP or settlement offer) may have monthly or setup fees. The answer should not be complicated, and the total amount you need to pay should be reasonable. A typical red flag is if a company starts to quote you a complicated payment structure of fees, rates, and percentages. That may mean you have gone to the wrong company or counselor.
You should try to get something simple, like a small setup fee, and then a recurring monthly payment. Question any fees they say are included in the program and that you will need to pay. Ask for clear, upfront disclosure. Reputable non-profit agencies don’t charge large upfront fees and should waive fees for people in serious hardship. Though a private company working to “settle” your debt more than likely won’t provide free services.
Can you help with my specific type of debt (medical, student loans, credit card, payday loans, etc.)?
With most things in life, some people are better at certain tasks than others. Some non-profit counselors and companies in the private industry are more experienced with certain types of debt. Maybe they have relationships with certain lenders or experience with an organization you owe money too. Or the non-profit will have programs for specialized debts. The Department of Justice also has questions to ask about various debt relief options as well, even around bankruptcy with information here. https://www.justice.gov/ust/frequently-asked-questions-faqs-credit-counseling.
How is the service provided?
They should have a wide variety of options. Services should be offered by telephone, in person, and even over the Internet. Find a company that offers many options, and the one that works best for you. Also ask about confidentiality - get assurance (in writing) that your personal information won’t be shared with creditors or outside parties without your consent.
Also, one-time consultations, whether in person or over the phone, may not be enough. As many people often need ongoing support as they continue to work on reducing their debt and getting back on financial track. A credit counselor should be willingness to support your progress over time and offer follow-ups.
Will you provide a written action plan and budget after the consultation?
A good credit or debt counselor should help both enter and you leave the program with a personalized budget, resources, and next steps in writing. That should also be done after each session as well. As the credit counseling organization provides these action items, look for clear written transparency in what they give you and be sure they also take accountability. Any client should also be given the time to review what was discussed.
Does your credit counseling or settlement organization a debt management plan (DMP) and is it right for me?
Depending on your personal financial situation (amount of debt, income, credit scores, etc.) not everyone needs a DMP or they may not need the company to try to aggressively "settle" their debt. Counselors shouldn’t push it, or any solution, unless it’s genuinely a good fit. Any agency you work with should give an honest evaluation of your financial situation.
As all solutions, whether some type of negotiated debt settlement with your creditor(S) or a DMP is not always needed. As there are other options to take that can help people with reducing interest rates, waving fees, and that consolidates payments without taking out a new loan such as even just asking the creditor about hardship programs.
What are my other options to get out of debt or improve my finances?
A good counselor will explain all your options as again each client will often have unique needs. Non-profits can be involved in negotiating directly with creditors to reduce payments or get out of fees or lower interest rates. There are also hardship plans, bankruptcy counseling, loans that can be used to consolidate debt, or simply budgeting tips. Any for-profit or non-profit should give unbiased advice and not pressure you to sign up for a particular program.
If debt settlement is recommended, then what are the fees and charges?
Most of the fees you pay should be based on their results or performance. Most companies will charge you a flat fee that is based on a percentage of your overall debt amount that is “reduced”/waived. Be sure this percentage is clearly communicated and can’t change over time. The fees will be collected in the beginning months of the program, and you owe the amount even if no settlements are completed yet. Ensure some of the fees that you are responsible for paying are dependent on the program being successful.
Conclusion - Always ask questions and take time to make a decision
Never rush or be pressured. Always remember that if some person or a company promises they can easily and quickly make all your unpaid debts disappear, while at the same time somehow magically improving your credit rating, stay away from them. There never should be guarantees as part of this process.
Any type of program takes hard work as well as discipline by the customer. Credit counseling, education and assistance programs are all worthy, effective services but they're not miracles. The provider should say you will need to work hard, stay focused, and be disciplined in order to be successful in reducing any debt you may have.
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