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If you're struggling to manage debt, swamped in the stress of multiple credit card bills and straining to afford other expenses, a credit counselor may be able to help. Credit counseling can help you manage your finances and navigate the process of getting out of debt.
But trusting a credit counseling agency to help you unpack your financial difficulties and regain control of your cash flow and debt is a big choice. For starters, you'll want a nonprofit, accredited credit counselor, but there's more to consider. It's important to be sure that the person you work with is an expert with your best interests in mind before you agree to work with them—or hand over any information about your finances.
Ask a credit counselor these five questions to determine whether they're the right fit for you.
1. What Are Your Accreditations?
You should only consider working with a credit counselor who has certifications that prove they're qualified to help you improve your financial situation and overcome debt.
The easiest way to find an accredited credit counselor with the expertise you need is to go through an agency accredited by the National Foundation for Credit Counseling (NFCC), an organization that exclusively works with nonprofit counseling agencies, or the Financial Counseling Association of America (FCAA), which works with both nonprofit and for-profit agencies that meet its high standards of service.
2. Is Your Service Nonprofit?
Working with a nonprofit credit counseling agency provides you some assurance that the person you're working with has the best of intentions in mind. So before you go any further in the process, verify that the counselor you're speaking to belongs to a nonprofit agency.
Nonprofit credit counselors are required to put your interests first. That means that they'll recommend the best options for you, rather than push you into services that come with fees. For services that do cost money, nonprofit rates tend to be lower than rates for the same services at a for-profit credit counseling agency.
3. What Do You Offer Besides Debt Management Plans?
One red flag to look out for is a credit counselor who pushes a debt management plan as your only option. Debt management plans, in which the credit counselor negotiates with your creditors to reduce your interest rates and fees and you make a single payment that goes to your creditors every month, can be very helpful when you are facing a mountain of credit card debt. But they're not right for every situation.
If a credit counselor also steers the conversation exclusively toward debt settlement without understanding your full situation first, it's probably best to look elsewhere for help. A credit counselor whose priority is helping you improve your financial situation should offer you a range of alternatives tailored to the specifics of your situation.
4. How Much Does It Cost to Work With You?
Your first meeting with a credit counselor should always be free. During that meeting, you should receive information to help you assess your current financial situation, create a budget plan and begin managing debt. A good credit counselor won't ask you to pay for information.
Other, specific services may come with fees, so be sure to ask your counselor about various options and their costs upfront. For instance, a debt management plan typically comes with relatively low upfront and monthly service fees.
5. How Will This Impact My Credit?
Before you commit to a strategy for getting on top of debt, ask what impact you'll see on your credit. A good credit counselor should be able to tell you what will happen to your credit score while you work together.
For example, entering into a debt management plan can impact your credit. Over time, getting out of debt will help your credit, but you'll likely also see a reduction in your credit score if you opt for a debt management plan, as creditors typically close those accounts as part of the agreement. Doing so will decrease your available credit and can impact your credit utilization ratio and the age of your accounts, though it's still a better option than debt settlement or bankruptcy.
Ultimately, the impact to your score will vary based on where your score is at right now and the specifics of your current debt situation.
The Bottom Line
When it's the right choice for you, credit counseling can be a powerful way to regain control of your finances and get out of debt. But it's also vital to only work with a credit counselor with the right accreditations and who offers services tailored to your financial challenges. Asking the right questions upfront can help you screen potential counselors to find a good match.
Whatever course you take out of debt, start monitoring your credit for free through Experian to see where you stand first. You'll get a clear look into how your balances and payment history are helping or hurting your score, plus see your efforts to get out of debt pay off in real time.