Many Americans are drowning in debt and not sure what to do about it. Some sites offer tips and steps to take to get out of debt. But many people could benefit from having a financial and credit counselor walk them through the process of getting out of debt. The best credit counselors, according to both Bankrate and MSN, offer their services for free.
What Credit Counselors Do
Credit counselors meet with clients for an hour or so and help them create a debt management plan. According to this plan, clients may pay the credit counseling agency every month, and the agency then pays the creditors. Frequently creditors will lower interest rates or make other concessions for an agency. Often agencies require clients to cut up their credit cards and commit to a specific budget.
Where to Find Reputable Counselors
Many articles warn of scams in every facet of the credit industry. Two organizations often listed (by the Federal Trade Commission as well as MSN Money and Bankrate) are the Association of Independent Consumer Credit Counseling Agencies and the National Foundation for Credit Counseling (see Resources).
Pros and Cons of Credit Counseling
Unfortunately, while signing up with a credit counselor shows a good faith effort, it can show up as a black mark on the consumer's credit report, largely because paying a renegotiated sum or interest is not the same as paying the debt in full. Also, many agencies put the client on a debt diet. For a third of clients, one counseling session leads to financial recovery. The other two-thirds either have more severe personal problems that lead to the debt or drop out of the debt management plan.
Other Debt and Financial Advisors
Other advice sources, such as financial planners, will help with a strategy without damaging your credit, and they may have a more comprehensive view of your finances. However, their services cost money. So make sure your financial planner is well qualified, has a broad education in financial options, and is working for you, not just a commission. Liz Pulliam Weston of MSN Money recommends you thoroughly investigate any financial planner before hiring him.
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