How Do Credit Advisers Work?

Credit advisers help when you cannot straighten out your finances on your own. Credit counseling companies employ advisers to assess your individual situation and explain your options. Many credit counseling firms are nonprofit, offering free or affordable advice. Credit advisers work with clients through face-to-face meetings, online or on the phone, making their services convenient to access.

Counseling

Your best option to get out of debt depends on your individual financial situation, including bills owed, income, savings and other factors. A credit adviser assesses your finances during a counseling session and makes customized recommendations, which might range from developing a strict budget to entering a structured repayment program to declaring bankruptcy. Beware of advisers who push the same solution for every client, the Federal Trade Commission warns.

Repayment Plans

Credit advisers work with the companies to which you owe money if you choose to enter into a debt management plan. Advisers can often negotiate better terms, like lowered interest, and get late fees removed from your accounts. You send your payment to the credit counseling company every month, according to the Better Business Bureau, and the firm forwards the appropriate amounts to your creditors. Usually your adviser creates a plan that makes you debt-free within two to five years if you follow it exactly as agreed.

Training

Good credit counseling firms have their credit advisers trained by an independent organization that certifies or accredits them, according to the FTC. Ask about training before working with a counseling company, and choose a different firm if you discover the advisers are not formally trained. A company should belong to a professional group like the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies, and its advisers should adhere to that organization's ethical standards.

Compensation

Ask how a credit counseling company is funded and how its credit advisers are compensated before working with the firm. Nonprofit status does not necessarily mean a counseling agency is legitimate, according to the BBB. Counselors should not receive commissions for pushing you toward certain options, like debt management plans, and the firm's primary funding should come from creditors, not from client fees.

Warning

Do not confuse credit advisers from credit counseling companies with people who work for debt settlement firms. Settlement companies charge high fees and often make unrealistic promises, like wiping out your debt for pennies on the dollar, the FTC warns. Settlement is different than a debt management plan. The company usually has you stop paying your bills to make your creditors more likely to negotiate. This hurts your credit rating, and your lenders may refuse to settle, putting you in a worse position than you were in initially.