Tips for Choosing a Credit Counseling Agency

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Financial difficulties due unemployment, fallout from the ongoing pandemic and other factors may lead some Americans to take on more debt than they can comfortably manage. If you find yourself struggling to pay bills on time and juggling multiple creditors, credit counseling might be an option to help you feel more in control of your finances again. Read on to find out more about how to find the right credit counseling agency for you.

What Is a Credit Counseling Agency?

A credit counseling agency is an organization that helps you get out of debt and manage your money. Credit counseling agencies, also sometimes called debt counseling agencies, focus on financial education and work with you to navigate the debt paydown process and offer strategies to help you avoid taking on more debt than you can afford in the future.

A vital service credit counseling agencies can offer is helping you understand your credit report and score. Your credit report—and credit score based on the information in your report—is important because it tells lenders how risky it might be to lend you money. Reviewing your report to ensure all the information there is correct, as well as understanding areas for improvement in your credit score, are good first steps in helping get your debt under control. You can review your Experian credit report and credit score for free to get an idea of what's there before you meet with a credit counselor.

Credit counseling agencies can also help you:

  • Get a realistic picture of your finances
  • Help you make a budget
  • Give you a better understanding of how debt works
  • Know your rights and responsibilities as a borrower
  • Provide free workshops and materials
  • Create a debt management plan to pay down your debts

Credit counseling agencies can be helpful in many ways, but at a minimum, you can expect them to review your income and expenses, create an action plan for getting back on track, and make recommendations for managing your credit.

Should I Use a Credit Counseling Service?

Using a credit counseling service isn't for everyone, but there are some telltale signs it could be helpful to you, especially if you:

  • Regularly miss credit card payments
  • Struggle to pay your mortgage
  • Consistently pay credit cards late
  • Make only the minimum payments on credit cards
  • Are surprised by unforeseen bills or expenses
  • Are receiving calls from collection agencies
  • Have difficulty understanding your credit report
  • Live paycheck to paycheck
  • Feel overwhelmed by your debt

Before you find a credit counselor, it's essential to take a few minutes to consider your "why": Are you trying to find ways to improve your overall financial health? Did you just receive an unexpected debt collection notice? Are you trying to avoid accruing even more interest on your debt? Whatever your biggest needs are, jot them down so that you can make the best use of your time with a counselor.

How Do I Choose a Credit Counseling Agency?

Once you've figured out what areas you need help with, you'll need to find a credit counseling agency that can help you work through your financial issues. It can be hard to know whom to trust with something as important as your financial well-being. Fortunately, there are trustworthy resources available to help match you with a certified credit counselor. The first step is to look for nonprofit agencies that work with certified credit counselors. The two most well-known resources are:

  • The National Foundation for Credit Counseling (NFCC): This nonprofit financial counseling organization and its member agencies offer a free online assessment to determine if financial counseling is right for you. Their website is easy to navigate, and you can arrange an appointment with a certified counselor online or over the phone.
  • Financial Counseling Association of America (FCAA): FCAA is another nonprofit resource that lets you search for certified agencies by state and also offers the Debt Decisioning Tool, a free calculator to help you get a good snapshot of your current financial health.

These organizations can connect you with certified credit counselors. Once you've developed a list of potential credit counseling agencies, make sure the agencies you're considering are certified by checking the U.S. Department of Justice's list of agencies approved by state. Also check with your state's attorney general's office, local consumer protection agency and the Better Business Bureau to see if there are any customer complaints against the agency and make sure they're in good standing.

Ask the counselors for free information about their services and see if their expertise lines up with your list of needs and priorities. A reputable credit counseling organization should be willing to send you free information about itself and the services it provides without requiring you to give any details about your situation. If a service doesn't do that, consider this a red flag and go elsewhere for help.

Credit counseling agencies are not the same as for-profit "credit repair" companies, which charge fees and make promises to change information on your credit report. These companies often are scams and should be avoided.

How Much Does Credit Counseling Cost?

Are you worried about the prospect of going into even more debt to pay for credit counseling services? You'll be happy to know that many nonprofit credit counseling agencies offer helpful services at no charge. In fact, the first step of any credit counseling service is a free budget and debt counseling appointment. Your selected advisor will get information from you regarding your financial situation, explain your options for managing your debt, offer recommendations, and help you develop a plan to meet your goals.

Some additional services may come with a fee, however. For example, you might decide to enroll in a debt management plan. With this arrangement, you make a single, recurring payment to the credit counseling agency. In turn, the agency makes monthly payments to each of your creditors (with whom they may negotiate reduced payments or interest charges). Typically these plans have an initial application fee and an additional monthly fee, which is either a fixed rate or a percentage of your debt. The industry average application fee is around $75, and a typical monthly cost might be between $25 and $55 per month.

A word of caution: If a counseling service asks for payment before they've even met with you for an initial consultation, it could be a scam. No certified, nonprofit agencies found through FCAA or NFCC will require upfront payment before you meet.

With many certified nonprofit credit counseling agencies offering free initial consultations, there's not much downside to enlisting the help of a counselor other than a bit of your time. Understanding the services they offer and how they might be able to help you navigate your debt payments could be well worth it.

The Bottom Line

Credit counseling could be an excellent way to get back on track with your finances if you struggle to cover payments due to low income or too high expenses that don't leave you enough money for living costs. There are many resources to help you along your journey, including Experian's debt resource center.

Monitoring your credit can help you understand your current debt situation and also help you track your progress as you begin your debt paydown. Experian offers free credit monitoring, which allows you to check your credit regularly and will also update you when there's a change to your Experian credit report so you can keep an eye out for any potentially fraudulent activity.

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