Consumers struggling with debt are often bombarded with offers for help with programs advertising free or low-cost credit counseling services. These programs may seem tempting, yet not all services offered by these counselors are free. Before you join, make sure you understand what you will get and what the potential costs will be.
What Is Free
Most programs that offer free or low-cost services include counseling, education services and budgeting help. According to the National Foundation for Credit Counseling (NFCC), this can be offered in person, online, through the mail or over the phone. This counseling may include credit management education, budgeting help, counseling about credit and debt, mortgage counseling and tips about buying a home. Sometimes it will also include education about bankruptcy.
How Counselors Make Money
The companies that advertise free services will make money by charging fees on services outside of credit counseling. For example, they may offer debt-consolidation plans, bankruptcy filing services or a for-fee debt-management program. If you choose to participate in any payment plan through your credit-counseling firm, inquire as to how the payment will be disbursed, and learn what percentage of the payment will be used to cover the agency's overhead. The NFCC indicates that some companies receive funding from contributions from creditors participating in debt-management plans, private funding and grants.
What Happens When You Call
When you call an agency offering free credit-counseling services, you will be asked to gather financial documents and other information before your counseling session. At your counseling session, the counselor will look over your financial situation and offer helpful suggestions as to ways you can better manage your debt, often including a budget plan you can use to both pay down your debts and cover your day-to-day expenses. The Federal Trade Commission (FTC) recommends finding a company that offers in -erson counseling, rather than having a counseling session over the phone or online.
Can You Benefit
If you are in a financial position where you cannot see your way out, free credit counseling services can help. They provide budgeting help and the option for a workable payment solution. Counselors can also help you see where you might be misusing funds that could be going to pay down your debts. You need to be aware of the potential costs you may face as you enter the program, and you need to be able to say no to services you do not want or need or simply cannot afford.
What to Avoid
Most credit-counseling companies will offer free information or a free initial consultation. The FTC warns consumers to avoid those companies that refuse to offer this free information without first requiring personal financial information, such as credit card or bank account numbers. They could be scammers looking to steal your identity. Also, avoid companies that try to enroll you in a debt-management program without taking the time to first review your financial situation or provide tips on budgeting strategies. Finally, avoid programs that ask you to enroll in a debt-management strategy before your creditors have agreed to the program.
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