BANKRUPTCY UPDATES

Credit Counseling Agencies

If you are worried that a creditor may be calling every time the phone rings, or if you know you spend more than 20 percent of your income paying off debts, you may be considering credit counseling as a way to filing bankruptcy to help you get your finances back on track.

You must be cautious, however, if you are going the route of credit counseling.

The credit counseling industry has come under much scrutiny over the last few years.

In particular, many agencies have been investigated, and some have had their non-profit status revoked by the IRS for outsourcing administrative functions to for-profit companies owned by the directors of the non-profit agency.

Other agencies have been attacked on the grounds that their primary focus is on influencing consumers to join lucrative debt management programs, instead of concentrating on the intended purpose of educating consumers.

Credit counseling may be able to help you take steps toward gaining financial stability, but with a myriad of options out there; finding a good credit counseling company can seem like a daunting task. There are some serious issues to consider before you sign up with a credit counseling company.

Working With Credit Counselors

The credit counseling company you choose should be as concerned with educating you about your financial options as they are about helping you pay off your debts.

After all, identifying the cause of your debts will help you prevent repeating your problems several years down the road!

A credit counselor should conduct a complete financial analysis by writing a complete monthly spending plan and budget to figure out where you are spending your money.

Here are some issues to examine:

• Is the company accredited? The National Foundation for Credit Counseling (NFCC) and The Association of Independent Consumer Credit Counseling Agencies (AICCCA) are industry associations that have high standards for all of their members.
• Are the counselors certified? If they are trained and certified by an independent office, such as the Association for Financial Counseling and Planning Education (AFCPE), you know that the counselor has been certified and trained in areas including money and debt management and budgeting.
• What happens with your first payment? If the counseling agency takes your first payment to apply toward overhead, before making any payments to creditors, that practice may be an indication that the agency is more concerned with making money that they are with getting you out of debt.
• How are the counselors paid? If the counselor gets a bonus for enrolling you into a program, that is a sign that the agency's main focus is on sales of debt management programs, not education.
• Do they provide ongoing education? Monthly newsletters, website articles and training programs are an important step in maintaining good financial health.
• Will you be out of debt in five years? If you choose to pay off your bills through a debt management plan, most reputable companies will help you pay it off over a five-year period.
• Can you get a copy of the contract? Don't sign on with any counseling agency without having your agreement in writing.

Be wary of companies that try to push you into a debt management plan before you tell them much about your personal financial history or present 'to good to be true' offers of low monthly payments. Make sure you determine whether there are hidden fees and costs or whether they require big payments up front.

Credit counselors should present you with a wide range of options to help you eliminate your debt and work toward financial stability. Some of those options include you working directly with your creditors to pay off debts, a debt management program, debt consolidation or even bankruptcy.

If you do some research and ask the right questions, you may be able find a good, reputable credit counseling agency that will help get you back on track to financial freedom.

Other Resources: Bankruptcy vs. Credit Counseling

Subscribe