Do you live from check to check? Are you worried about debt collectors? Can not develop a budget that works or save money for retirement? If all this sounds familiar to you, you may want to consider the services of a credit counselor or advisor.
Most credit counselors or advisors offer their services through local offices, on the Internet or by telephone. Where possible, look for an organization that offers in-person counseling services. Several universities, military bases, credit cooperatives, housing authorities and subsidiaries of the US Cooperative Extension Service. they operate non-profit credit counseling programs. You can also use the information and references provided by your financial institution, the local consumer protection agency, and family and friends.
But be careful because the fact that an organization presents itself as a "non-profit" entity does not guarantee that its services are free, accessible or even legitimate. In fact, there are some credit counseling organizations that charge high fees, which are often hidden, or that pressure consumers to make "voluntary" contributions that can cause even more debt.How to Choose a Credit Counseling OrganizationCredit counseling
organizations in good standing advise you on how to manage your money and manage your debts, help you develop a budget, and usually offer you free educational materials and workshops. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. The counselors talk to you about your overall financial situation and help you develop a customized plan to solve your money problems. Usually, an initial credit counseling session lasts about an hour and may offer some other follow-up sessions.
A self-respecting credit counseling organization should send you free information about itself and the services it provides without first asking for any details about your situation. When a company does not act in this way, consider this information as a red alert and ask for assistance elsewhere.
Once you develop a list of possible credit counseling organizations, check your reputation with the office of your state Attorney General, local consumer protection agency, and the Better Business Bureau. They can tell you if other consumers have filed complaints about those organizations. (But even when they do not file any complaints against these organizations, there is no guarantee that they are legitimate.) The United States Receivership Program has a list of credit counseling organizations approved by the government to provide pre-bankruptcy counseling. You can find a list of organizations approved by the government detailed state by state at www.usdoj.gov/ust (in English). Once you have all the background, it is time to interview the final "candidates".List of Questions
These are some of the questions that can help you find the best counselor for your case.
What services does it offer? Look for an organization that offers a wide variety of services, including advice on budgeting and savings and money management classes. Avoid making deals with organizations that insist that your only option is a debt management plan before taking the time to analyze your financial situation.
Do you offer me information? Do you have free educational materials? Avoid making deals with organizations that charge you to give you information.
In addition to helping me solve my immediate problem, will it help me develop a plan to avoid problems in the future?
What are your charges or fees? Are there initial charges and / or monthly fees? Ask them to give you the quote for the price of the services in writing.
What will happen if I can not pay the charges or make contributions? If an organization does not give you help because you can not pay, get help elsewhere.
Will I have a formal agreement or contract written with you? Do not sign anything without reading it first. Make sure all verbal promises are written in the contract.
Are you licensed to offer services in the state where I live?
What are the qualifications of your advisors? Do they have accreditation or certification granted by an external organization? Who granted the licenses or certifications? If your organization does not have a license or accreditations, what type of training did your advisors receive? Try to use the services of an organization whose advisors have received training from an external and independent entity.
What security do I have that my information (including my address, phone number and financial information) will be protected and kept confidential?
What type of remuneration do your employees receive? Will you be paid more if I accept certain services, if I pay a fee or if I make a contribution to your organization? If the answer is affirmative, consider it a red alert light and seek help elsewhere.Debt Management Plans
If your financial difficulties stem from excessive indebtedness or your inability to repay your debts, a credit counseling agency may advise you to enroll in a Debt Management Plan (DMP). A debt management plan alone is not considered as credit counseling, and these plans are not an appropriate option for all people. Consider enrolling in one of these plans only after a certified credit counselor has taken the time to thoroughly review your financial situation and offered you personalized advice on managing your money. Even if a debt management plan is determined to be right for you, you can still get help from a reputable credit counseling organization to make a budget and to teach you how to manage your money.How debt management plans work
Every month you deposit money with the credit counseling organization. The organization uses your deposits to pay your unsecured debts - your credit card bills, student loans and health care bills - according to a payment program that the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or exempt you from paying certain charges, but check with each of your creditors to be really sure that they are offering you the concessions described by the credit counseling organization. For a debt management plan to be successful, you need to make your payments regularly and on time, and completing the plan usually takes 48 months or more. Ask your counselor to estimate the time it will take you to complete the plan. In addition, you may have to commit to not requesting - or using - additional credit while you are enrolled in the plan.Is a debt management plan the right choice for you?
In addition to the questions listed above, if you are considering enrolling in a debt management plan, we list other important questions.
The only option you have to offer me is a debt management plan? Will you provide me with budgetary advice on a regular basis regardless of whether or not I sign up for a debt management plan? If an organization offers only debt management plans, find another credit counseling organization that also provides assistance in budgeting and teaching you how to manage your money.
How does your debt management plan work? How will you ensure that all my creditors receive the payments within the agreed deadlines and within the correct billing cycle? If you came to the conclusion that a debt management plan is the most appropriate for you, sign up for one that is structured so that all your creditors receive payments before the due dates and within the correct billing cycle.
How is the amount of my payment determined? What happens if it is more than I can face? Do not sign up for a debt management plan if you can not afford the monthly payments.
How often can I receive reports about the status of my accounts? Can I access my accounts online or by phone? Make sure that the organization with which you decided to make a deal is willing to provide you with detailed account statements on a regular basis.
Can they get my creditors to lower or eliminate interest and finance charges or exempt me from paying late fees? If the answer is yes, contact your creditors to verify and ask how long you should stay in the plan before the benefits are activated.
What are the debts that will be excluded from my debt management plan? This is an important point since you will have to pay those debts on your own.
Do I have to pay something to my creditors before they accept the proposed payment plan? Some creditors require that you pay the credit counselor before accepting it in the debt management plan. If a credit counselor tells you this, before sending the money to the credit counseling organization, call your creditors to verify this information.
How will my credit be affected if I sign up for a debt management plan? Beware of organizations that tell you that they can remove negative information from your credit report. From the legal point of view, this is impossible. Negative information that is correctly recorded can remain on your credit history for up to seven years.
Can you get my creditors to reclassify the seniority of my accounts - that is, to put my accounts up to date? If so, how many payments will I have to make before my creditors update my accounts? Even when your delinquent accounts are updated, negative information about your previous defaults will remain recorded on your credit report.How to make a debt management plan work for you
Continue paying your bills until your creditors approve your plan. If you stop making your payments before your creditors have accepted you into the plan, you will have to face charges for late payments, penalties and negative references reported in your credit history.
Before sending a payment to the credit counseling organization with which you drew up the plan, contact your creditors and confirm that they have accepted the proposed plan.
Make sure that the payment schedule established by the credit counseling organization is structured so that your debts are paid monthly before the due date. Paying on time will help you avoid late fees and other penalties. Call each of your creditors the first day of each month to make sure the agency paid them on time.
Review the monthly statements of your creditors to make sure they received your payments.
If your debt management plan depends on your creditors agreeing to lower or eliminate interest and finance charges, or exempt you from paying late fees, make sure these concessions are reflected in your account statements.The Telemarketing Sales Rule
Amendments to the FTC's Telemarketing Sales Rule prohibit for-profit companies that sell telephone debt settlement services or other services to reduce the level of indebtedness from charging or charging you before they discharge your debts, reduce the amount of your debt or get a change for your debt. If you hire a company that offers services to help you reduce your debts, you may be required to deposit money in a bank account exclusively for the payment of your debts that will be managed by an independent third party.Debt Settlement Programs
Debt settlement programs have many differences with credit counseling and debt management plans. It can be a very risky option and could have a long-term negative impact on your credit history and at the same time on your ability to get credit. For these reasons, many states have laws or rules that regulate debt settlement companies and the services they offer. For more information, contact the Attorney General of your state.The Declarations
Companies that offer debt settlement services can tell you that they will negotiate with your creditors to reduce the amount you owe them. Some debt settlement companies can tell you that they are in a position to make the necessary arrangements to pay off your debt for a much smaller amount - between 30 and 70 percent of the balance you owe. For example, if you have a credit card debt of $ 10,000, a debt settlement company can tell you that you are in a position to negotiate for you to cancel paying less than $ 4,000. There are also some debt settlement companies that can declare that they operate non-profit.
Companies that offer this type of service usually advertise them as an alternative to bankruptcy or bankruptcy. You may be told that using your services has a small or no negative impact on your ability to obtain credit in the future, or that any negative information posted on your credit record may be deleted once you have completed the bargaining program. of debt. Usually, these firms tell you to stop making payments to your creditors and instead send payments to the company. The company could also promise to keep your funds in a special account and pay the creditor on your behalf.The Truth
There is no guarantee that the services offered by the debt settlement companies are legitimate. There is also no guarantee that a creditor will accept a partial payment of a legitimate debt. In fact, if you stop paying your credit card bill, you will usually be adding interest and late payment charges to the amount of your debt. If you exceed the credit limit granted, you can also add charges and additional expenses. All this can cause your original debt to double or triple. All these charges will sink it even more.
Creditors are not required to negotiate the amount owed by a consumer, but they do have a legal obligation to report accurate information to credit reporting agencies, which includes failure to meet their monthly payments. This may result in negative information being recorded on your credit report; And in certain situations, creditors may have the right to sue you to recover the money you owe them. In some instances, when creditors win a judgment, they have the right to garnish your wages or put a lien on your house. And as if this were not enough, the Internal Revenue Service (IRS) can consider the amount of debt forgiven as income subject to taxes.Charges
Amendments to the FTC's Telemarketing Sales Rule prohibit companies that sell telephone debt settlement services or other services to reduce the level of indebtedness from charging or making charges to you before they meet or reduce the amount of your debt. .
If you hire a debt settlement service company, you may be required to deposit money in a bank account solely for the payment of your debts that will be managed by an independent third party. The administrator of that account can charge you a reasonable fee for your services and is responsible for transferring the funds from your account to pay your creditors and the debt settlement company when it reaches an agreement with your creditors to settle your debt.Compulsory Information
Before you sign up to receive the service, the debt settlement company must provide you with information on the following points of the program:
Price and terms. The company must explain what the applicable charges are and how they are composed and must inform you of any condition about their services.
Results The company must inform you how much time will pass until the results are produced. This means, how many months or years will pass before the company makes a payment proposal to each creditor.
Proposals The company must inform you how much money or what percentage of each outstanding debt you should save before you make a payment proposal to each of your creditors.
Cessation of payment. If the company asks you to stop paying your creditors - or if the program is based on your not paying your debts - the company must inform you of the negative consequences you might suffer for not paying.Impositive consequences
Depending on your financial situation, money saved using the services of debt relief
companies can be considered as taxable income. Credit card companies and other creditors can report debt settlement agreements to the IRS, and the tax collection agency can consider the amount you were saved from paying as an income, unless it is determined that you are " insolvent". It is considered that a person is insolvent when the total amount of their debts is higher than the market value of all their assets. Determining a person's insolvency can be a complicated process. If you are not sure that you meet the necessary requirements to benefit from this exception, talk to a tax professional.Recommendations to Avoid Scams
Stay away from companies that:
They charge you some charge before paying off your debts.
They guarantee that they can make their unsecured debts disappear.
They announce a "new government program" to rid them of personal debts contracted by credit card.
They promise that they can cancel their unsecured debts by paying a few cents for every dollar they owe.
They tell you to suspend payments or communication with your creditors.
They tell you that they can stop all debt collection calls and lawsuits.
They tell you that creditors never sue consumers for non-payment of unsecured debts.
They promise you that using their systems will not have a negative impact on your credit report.
They tell you that they can remove the bad information reported correctly from your credit report.
If you decide to hire the services of a debt settlement company, be sure to verify your legitimacy at your state Attorney General's office, the local consumer protection agency or at the Better Business Bureau office, at these three locations they can inform you if they register complaints filed by other consumers against the firm you are considering to hire. Also ask at the state Attorney General's office if the company must obtain a license to operate in your state, and if so, if that company obtained the corresponding license.