Consumer credit counselors help individuals manage their debts and improve their financial well-being. Using credit counseling services involves working with an agency to create a structured plan for repaying debts and managing personal finances.
Most credit counseling services are non-profit agencies that do not charge a fee. However, although the Federal Trade Commission oversees them, all agencies are not the same, so it pays to know what to expect before signing up.
The process
When you approach a credit counseling agency, a representative will start by evaluating your financial situation. This assessment includes a thorough review of your income, expenses and debts. Based on the information you provide, a credit counselor will work with you to develop a personalized budget and debt management plan.
Potential benefits
Consumer credit counseling offers the following potential advantages to people grappling with debt:
- Debt consolidation into a single, more manageable monthly payment
- Reduced interest rates from creditors
- Financial education to improve money management skills
Researchers from the Harvard Kennedy School demonstrated that clients undergoing credit counseling, with their counselors negotiating interest rate write-downs from creditors, exhibited a 30.8% greater likelihood of completing their debt repayment programs than those who did not receive interest write-downs.
Warning signs
While legitimate credit counseling services can be beneficial, there are also fraudulent operations that give the industry a bad name. Consider it a red flag if an agency asks for upfront fees or promises a quick fix to your debt problems.
Self-protection
To ensure that you are working with a reputable consumer credit counseling agency, check with the Better Business Bureau for any complaints or issues. Also, be certain to have a copy of all terms and agreements in writing before you proceed.
Virginia requires those filing for certain types of bankruptcy to enroll in consumer credit counseling. By doing some research into which agencies are reputable, it is possible to turn this stipulation into a positive experience.