Debt Free

On occasion people get themselves in over their heads. It happens in many aspects of life, not just debt and credit. Since this isn’t a sports or construction management blog, we’ll stick to debt, credit and other personal finance related topics though. For some, availing themselves of a credit counseling service is a legitimate avenue toward getting debt free. This can be a great road to follow if you’ve been unable to get a handle on overwhelming consumer debt yourself. After all, seeking professional help is often warranted. You wouldn’t try to go it alone if your brand new BMW (that you bought on credit – see that’s part of the problem) needed repair, would you? Ditto if the wiring in your home needed to be replaced. 

Given that non profit credit counseling may be an avenue to explore, what should you look for to help ensure you don’t end up in more trouble than you’re in now?  Don’t confuse non-profit with free. These services will charge you to help extricate you from the hole you now find yourself in. In some cases the fee may be substantial, so be aware. If you are investigating the possibility of paying a professional to help you, here are some questions you should be asking during the interview process.

 

1)      Are you licensed for these services in this state? If they are not, walk away and find another service provider.

2)      Do you offer any free services or information? In some cases you may be able to get assistance and / or information without having to eBay all your possessions.

3)      What is your fee structure? You need to know in advance how they will charge you. Make sure you ask this question during the initial interview.

4)      What type of training has your staff received? A corollary question - Is the staff accredited by anyone? Before signing any contracts, you need to be sure the organization’s staff is qualified to help get you to the debt free status you’re looking for.

5)      Does your staff receive commission or bonuses based upon sales or the number of people they counsel? If so, you should probably move on. You want to get the full attention of the counselors because they’re doing their job, not be part of this month’s quota.

6)      Do you sell, rent or otherwise distribute my personal information? You need an ironclad guarantee of privacy. In this day and age, that’s essential. Look for a privacy policy and read it carefully.

 

In addition to asking these six questions, make sure you read the contract or agreement extremely carefully. You are entrusting these people to put you back on the road to debt freedom. You must be sure what you are committing yourself to.

They will probably put you on a debt management program. In such a program, you’ll pay the agency each month and they will ay your creditors, after retaining a portion of your money as their fee. Now you can see why it is so important to thoroughly check out the credit counseling service before agreeing to anything. The service should give you a schedule for completion. You should know exactly how long the process will take. In many cases they will negotiate reduced interest, principal, and / or fees with your creditors. If they indicate they will do this, check with your creditors to make sure that’s possible.

Run from credit counselors that:

A)    Say they can eliminate credit card and other unsecured debt. That’s typically not possible.

B)     Ask you to break all ties with your creditors. These debts are still in your name and affect your credit, not theirs. As such, you need to stay on top of everything, even if you do enroll in their program.

C)    Say that debt management programs will have little or no impact on your credit score. They will lower your credit score in almost every case. Usually it’s worth it to get debt free, and has a lesser effect than bankruptcy, however.

D)    If they steer you into a debt negotiation, instead of a debt management program, you will still pay your creditors the reduced amount they have negotiated. In this case, you pay the creditors, not the agency. Run from an agency that asks you to pay them in a debt negotiation program.

For some people, credit counseling agencies can be a godsend. There are, as with any industry, unscrupulous operators out there, however. Check everything out carefully so you know what you are getting yourself into. As with anything, information is a huge key to success.