Choosing a Credit Counselor

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 What Is Consumer Credit Counseling?

To advance awareness of credit and financial matters, the National Foundation for Credit Counseling (“NFCC”) was founded in 1951. It is a nonprofit credit counseling organization. The NFCC started providing a brand-new service called “consumer credit counseling” not long after it was established.

Several respected credit agencies now provide these programs, which are meant to inform the public about topics including debt repayment and improved money management. The organizations also offer a range of financial services, such as designing debt management programs and assisting clients in creating healthier budgets.

The Financial Counseling Association of America (“FCAA”) was founded in 1993 as an alternative organization to carry out the same functions as the NFCC. Although many consumer credit counseling services are offered by organizations that fall under both the FCAA and the NFCC, these organizations are not obligated by law to do so. They might instead function as independent groups.

Consumer credit counseling’s primary objectives are to cut interest rates over time and minimize the total amount of credit card debt that Americans owe to American financial institutions.

It can be in your best interest to contact a local credit lawyer for additional legal assistance if you are unsure whether you want to attend consumer credit counseling but would like to learn more about it first. Your attorney will be able to describe the program and go through some of the benefits and drawbacks of participating in one. Additionally, your attorney may suggest alternative strategies to help you reduce your debt.

Consumer Credit Counseling: Benefits and Drawbacks

Before deciding to participate in consumer credit counseling, customers should be informed of certain benefits and drawbacks, like with most things. If they have a choice, that is, of course. Consumers may occasionally be forced to attend these meetings whether they want to or not.

Attending consumer credit counseling may enable customers to bargain with their creditors in person about reducing their monthly payments and/or interest rates.

Typically, a credit counselor offers helpful information that might teach people how to manage their money and keep from getting into debt in the future.

Depending on a consumer’s financial circumstances, it may help them pay off debt more quickly than they would on their own (due to the educational component) and may help raise their credit score.

On the other side, the following are some drawbacks of participating in consumer credit counseling:

  • The consumer may find themselves in a worse situation than when they initially agreed to attend consumer credit counseling sessions if a creditor and the consumer agree to specific requirements and the client fails to fulfill those obligations.
  • It is acceptable for a creditor to reject a plan. Then it won’t be possible to use a counselor to bargain with a creditor, which will result in a failed debt management strategy.

Consumers may be denied access to their existing credit card accounts and the ability to open new credit lines.

For some credit issues, consulting a credit counselor may not be essential. For instance, in small situations, it might be more advantageous for consumers to speak directly with their credit card issuer to bargain for lower interest rates or monthly payments. Credit counselors may be more persuasive, but they normally don’t offer any services that are so exceptional that a consumer couldn’t get by without them.

How Much Does Counseling for Consumer Credit Cost?

Consumer credit counseling firms typically, if not always, declare that they are nonprofit businesses. Consumer credit counseling services are not allowed to charge their clients directly for counseling sessions. Still, they are allowed to classify a fee under a different name, such as:

  • Monthly maintenance charges,
  • Voluntary contributions,
  • Set-up or management charges, Operating fees, and/or
  • Monthly donations.

While some of the fees listed above may be valid costs, it’s crucial for consumers to understand how much of their monthly fees go to the credit counseling agency and how much is divided among their numerous creditors as part of the debt-reduction process.

Consumers may think about looking for a better business to provide them with credit counseling sessions if the response to this query is ambiguous or looks out of proportion.

What Can I Expect From a Credit Counselor Meeting?

Consumers should bring any documentation related to their salary, additional sources of income, and debt in order to secure the best outcome. Documents like pay stubs, credit card balances, and financial statements may all be helpful during this session.

After reviewing all of the client’s financial records, the authorized credit counselor will decide which kind of plan could be the most appropriate given the client’s present financial situation.

The customer must be conscious of whether the credit counselor is willing to create a straightforward budget plan rather than a debt management plan. Sometimes all a consumer needs is to make a better budget and stick to it. So, before signing any paperwork or committing to a debt management plan, a consumer should inquire.

How Can I Determine a Credit Counselor’s Credibility?

Many people who are struggling with large debts try visiting a credit counselor first before declaring bankruptcy. Here are some recommendations for choosing the top credit counselor:

  • Think about reputation: Choosing a credit counselor that has been in business for a considerable amount of time is preferable because they will likely be able to negotiate a better bargain for you.
  • Check for repercussions on credit: decisions you make now with a credit counselor could have a 10-year impact on your credit record. Discuss how their activities will affect your credit score with potential credit counselors.
  • Be wary of excessive or upfront costs: Read all paperwork very carefully, and inquire about the credit counselor’s fees. Pay no upfront or expensive monthly fees.
  • Keep away from claims of a quick fix: Debt relief is a challenging procedure that can take months or even years. Do not believe anyone who tells you otherwise, and stay away from any credit counselor who does not take the time to help you create a healthier budget.
  • Consider additional services: A reputable nonprofit organization will provide general credit counseling and budgeting services for no cost or a minimal fee. Be wary of anyone who tries to get you started on a debt management plan right away. Make sure you are selecting the best course of action by considering all of your options.
  • Consult the BBB for more information: Just to be secure.

How Am I Able to Spot a Credit Counselor Trying to Scam Me?

The following are red flags that suggest you should never consult a credit counselor:

  • Businesses that demand payment for credit repair before offering any services
  • Businesses that fail to inform customers of their legal rights and free self-help options
  • Businesses that advise against contacting credit reporting companies directly
  • Businesses that advise you to apply for an Employer Identification Number rather than your Social Security
  • Number in an effort to create a “new” credit identity
  • Businesses who encourage you to dispute every item on your credit report or engage in any behavior that appears unlawful or fraudulent

If My Credit Counselor is not Legitimate, Do I Need Legal Representation?

Consult an attorney right away if you are unsure of the validity of the advice you have been given or believe a credit counselor is trying to defraud you for money. Similarly, you should contact a credit lawyer right away if you’ve tried using a credit counselor without success or if you want to bypass this stage and declare bankruptcy instead.


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