Credit Counseling Companies and How They Operate

If you’re struggling with debt, you might hire a consumer credit counselor to reduce your monthly payments and help you pay off your debt in a reasonable amount of time. Credit counselors work with you to create a budget and figure out how much you can afford to pay. Then, they negotiate lower interest rates and minimum payments with your creditors. If you stick to the plan your credit counselor creates, you can be debt free within three to five years.

Video: What Does a Credit Counselor Do?

Required Licensing for Credit Counselors

Credit counselors must have a business license in every state that they do business, not just the state where the company is located. They should also be registered with your state’s attorney general. Though no certifications are required for a credit counselor to operate, you can better judge the legitimacy of a credit counselor if it’s certified through the Association for Financial Counseling and Planning Education, Center for Financial Certifications, National Association of Certified Credit Counselors, or National Foundation for Credit Counseling. A reputable credit counseling agency will also be accredited by the Council on Accreditation or ISO 9001: 2000 Standard.

How Credit Counselors Make Money

Many credit counseling agencies are non-profit businesses, but that doesn’t mean they offer services for free. The companies still have to pay their employees and other operating expenses, so they make money through government grants, donations from credit card companies, and fees charged to their customers (you). A reputable credit counseling company shouldn’t charge you more than $50 per month in fees and should offer free services to those who can’t afford to pay the fees.

Tips for Hiring a Credit Counselor

Before you hire a credit counseling company, you should realize that these agencies don’t have any more authority to reduce your debts than you do. You have the ability to call your credit card companies and ask for a reduced interest rate and minimum payment for free. Credit counselors, on the other hand, have experience in these types of negotiations and know exactly who to talk to and what to say to get the quickest results. Also, you may have trouble managing multiple monthly payments and due dates. If you use a credit counselor, you’ll only have one payment and one due date to remember. It’s the credit counselor’s job to distribute your payments among your creditors.

When you meet with a credit counselor for the first time, whether by phone or in person, your consultation should be free. The credit counselor should spend time reviewing your budget and present you with a few alternatives – not just encourage you to sign up for a debt management program. Check with the Better Business Bureau to find out the customer service record for any credit counseling agency you’re considering.

Video: Credit Repair vs. Credit Counseling

Where to Find Credit Counseling Agencies

The U.S. Trustee Program has a list of credit counseling agencies that are approved for pre-bankruptcy counseling, but these agencies can provide assistance even if you’re not thinking about filing bankruptcy.

The National Foundation for Credit Counseling provides a nationwide list of credit counseling agencies for each zip code in the country. The NFCC requires that its members are non-profit businesses and are accredited by the Council on Accreditation.

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