How to Choose a Good Credit Counselor, FTC Style

Credit counselors provide a valuable service by helping you get out of debt. When you enroll in a debt management program, or DMP, you send a single monthly payment to your credit counselor, who then distributes it to pay off your credit cards and other unsecured debts. People drowning in their debt often turn to credit counseling services.

But some credit counselors are little more than scammers, requiring large upfront payments before they will even discuss their strategies with you. Worse, some of these companies have hidden fees that customers don’t know about until it’s too late. Then they owe even more money, and fall even farther behind on their payments. A few particularly disreputable credit counseling services took people’s money and did nothing to alleviate their debt. Luckily, the Federal Trade Commission (FTC) has forced many of these criminal organizations out of business.

So how can you tell if you’re getting involved with a good credit counselor or a money-making operation that will do more harm than good?

Legitimate credit counseling services have debt counselors who have been trained and certified in many areas of personal finance. They will assist you in drawing up a budget, managing your income, paying off your debt, and improving your credit score. If a credit counseling service has nonprofit status, their counselors are required by law to educate and counsel clients. They will also offer information about their services, free of charge. Beware of any business that charges you money before they even outline what their services involve!

When you choose a credit counseling organization, the FTC recommends asking the following questions:

What services do you offer? A reputable organization offers personalized service complete with initial and follow-up consultations. Their advice will be tailored your debt scenario. Steer clear of companies that claim a DMP is your only option. If a DMP is right for you, that will be decided after the counselor spends time carefully scrutinizing your financial situation.

Will I receive a written agreement or contract? Get everything in writing. Scammers count on making a quick deal to confound customers, later slipping in fees and costs that weren’t agreed upon. Get a written copy of your entire agreement and fee structure to avoid misunderstandings. If a credit counseling service pressures you to make a commitment over the phone, take your business elsewhere.

Are your counselors accredited by a third-party organization? If a company’s counselors were trained by a creditor-affiliated organization, they might not have your best interests at heart. For example, they might receive a commission from creditors when you enroll in a DMP, even if that’s not the best course of action.

What is your status with the Better Business Bureau (BBB) and Attorney General’s office? If the company has had complaints filed against them, you can check with those sources to find out details about the complaints. 

Once you’ve found a nonprofit credit counseling service that meets these criteria, get a written contract and get ready to breathe a big sigh of relief – your debt-free days are coming soon!

Tagged as: credit counseling, dmp, ftc, personal debt