Credit Counseling

What is Credit Counseling?

Credit counseling has two main objectives--helping you learn to better manage your cash flows through budgeting and to help you escape indebtedness. Credit counselors are trained to help you identify budget shortfalls. In addition, they can help you develop a plan to eliminate credit card debt.

Who Needs Credit Counseling?

Credit counseling is provided for individuals and families that are feeling the pinch from high interest debt. When your expenses and debt payments begin to exceed your monthly income, then you are on your way to financial destruction. Warning signs include late or missed payments and using credit cards to pay living expenses such as gasoline and groceries. If this sounds familiar, you are likely spending more than you currently earn.

People of all lifestyles have sought credit counseling to escape the burden of high debt. Some debt management companies aggressively target people with higher incomes and high debt loads. Nonprofit organizations focus on those with limited incomes, often including the poor and elderly. In addition, those that appear on the brink of bankruptcy are also assisted by nonprofit credit counseling organizations.

Choosing a Credit Counselor

Choosing the right credit counseling agency can be a tricky endeavor. We recommend the following approach:

  • Find out what fees are charged. Legitimate agencies will fully disclose fees charged. Some agencies charge a counseling or consultation fee, while many do not. Also, are their classes and workshops free?

  • See what fees are charged for participation in a debt management plan (DMP). Nearly all agencies must charge fees for a DMP to offset the costs associated with administering the plan. Legitimate agencies will never keep your first month DMP payment as a fee for the plan. DMP fees should never exceed $50 per month, and many good agencies charge under $30 per month.

  • See if the agency offers face-to-face counseling and other on-site educational opportunities. If you cannot visit their office in person, make sure that telephone support will meet your needs.

  • Ensure that the organization is nonprofit. Search for charities that have been identified by the Internal Revenue Service as operating for a tax-exempt purpose. These organizations are more likely to receive grant funding for expanded educational outreach and usually offer additional resources. They also are not as dependent upon your money to cover costs.

Once you select an agency, they will work out a budget with you based on your debt, income and expenses to help you eliminate credit card debt within 3 to 5 years.

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