Credit counselors give you an array of potential solutions when debt threatens to sink you. A good credit counseling firm offers everything from online financial education materials to classes and personal counseling to setting up a repayment plan with your creditors, according to the Federal Trade Commission (FTC). Credit counseling is not right for everyone, and it has some downsides.
Service Recommendations
Legitimate credit counselors talk to you about your individual circumstances and make personalized suggestions tied into your situation. The FTC warns that some firms pay their counselors commissions for pushing certain services like debt management plans (DMPs). You may get pushed into a formal plan when simple budgeting or a less drastic solution would have worked just as well.
Training
Not all credit counseling firms have well-trained employees, which puts you at risk of receiving bad advice. The Better Business Bureau (BBB) advises finding a counseling firm with employees trained and certified by an outside organization. The company should also be properly licensed to do business in your state, and ideally it should belong to a professional group like the Association of Independent Consumer Credit Counseling Agencies or National Foundation for Credit Counseling.
Cost
Many credit counseling companies advertise nonprofit status, but the FTC advises that this does not mean they provide free services. Some even lie about being nonprofit, so always double check with the National Association of State Charity Officials. Ask the firm where it gets its funding. The BBB explains that the bulk should come from creditors, not clients, and good counselors disclose fees in writing before working with you. Insist on a formal contract that enumerates all services and fees when you decide on a credit counseling company.
Stability of Counseling Firm
Credit counseling firms sometimes go out of business, which causes problems when you are in the middle of a DMP. The FTC advises immediately contacting your bank if your payment goes to the counselor through automatic deduction. Your plan may be transferred to another credit counseling company or you may be on your own. Call your creditors directly if your plan is not transferred and ask if you can continue paying as agreed under the same terms. Otherwise your credit rating is damaged because of the skipped payments and defaulted agreement.
Privacy
You reveal extremely personal financial information to a credit counselor. The revelation is necessary to make the best recommendations for you, but the BBB warns that it causes problems if your data gets into the wrong hands. Always ask credit counselors how their firm secures and protects your information.
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