Credit counseling has
two main objectives--helping you learn to better manage your cash
flows through budgeting and to help you escape indebtedness.
Credit counselors are trained to help you identify budget
shortfalls. In addition, they can help you develop a plan to
eliminate credit card debt.
Who Needs Credit Counseling?
Credit counseling is
provided for individuals and families that are feeling the pinch
from high interest debt. When your expenses and debt payments
begin to exceed your monthly income, then you are on your way to
financial destruction. Warning signs include late or missed
payments and using credit cards to pay living expenses such as
gasoline and groceries. If this
sounds familiar, you are likely spending more than you currently
earn.
People of all
lifestyles have sought credit counseling to escape the burden of
high debt. Some debt management companies aggressively target
people with higher incomes and high debt loads. Nonprofit
organizations focus on those with limited incomes, often
including the poor and elderly. In addition, those that appear
on the brink of bankruptcy are also assisted by nonprofit credit
counseling organizations.
Choosing a Credit Counselor
Choosing the right
credit counseling agency can be a tricky endeavor. We recommend
the following approach:
Find out what fees
are charged. Legitimate agencies will fully disclose fees
charged. Some agencies charge a counseling or consultation
fee, while many do not. Also, are their classes and
workshops free?
See what fees are
charged for participation in a
debt management plan (DMP). Nearly all agencies must
charge fees for a DMP to offset the costs associated with
administering the plan. Legitimate agencies will never keep
your first month DMP payment as a fee for the plan. DMP fees
should never exceed $50 per month, and many good agencies
charge under $30 per month.
See if the agency
offers face-to-face counseling and other on-site educational
opportunities. If you cannot visit their office in person,
make sure that telephone support will meet your needs.
Ensure that the
organization is nonprofit.
Search for charities
that have been identified by the Internal Revenue Service as
operating for a tax-exempt purpose. These organizations are
more likely to receive grant funding for expanded
educational outreach and usually offer additional resources.
They also are not as dependent upon your money to cover
costs.
Once you select an
agency, they will work out a budget with you based on your debt,
income and expenses to help you eliminate credit card debt
within 3 to 5 years.
