6 tips for picking a credit counseling agency
counseling agencies are bound by rules that should protect you from major
pitfalls such as high up-front fees and late payments to your creditors. But
even within this well-regarded group, some agencies perform better than
Here are tips from industry
experts about how to check out a credit counseling agency that will work best for
1. Check the basics.
Look up Better
Business Bureau records and check for membership in one of the two industry self-regulatory
organizations, the National Foundation for Credit Counseling and the
Association of Independent Consumer Credit Counseling Agencies. Also, your state attorney general's office may
be able to weigh in about any problems at the state level.
2. Beware of the hard sell.
Is the representative
taking the time to get familiar with your situation before recommending a
course of action? If you're being steered into a debt management plan hastily,
3. Ask for the graduation rate.
If a debt management plan looks like the way to
go, ask how many of the plans are successful. While your own discipline will be
the main factor in a plan's success, different agencies offer varying levels of
education and support. Be careful interpreting this number: Only about a
quarter of all debtors complete their plan, but agencies may estimate that
others finish paying on their own. A more telling figure might be the
monthly dropout rate -- 2 percent is low, more than 5 percent is high.
4. What are
Nonprofits are barred from charging high setup fees, and monthly
fees are limited to $50. But if you cannot afford even this, the agency should
be willing to reduce or waive the fee.
5. Does the agency work with your creditors?
One of the major benefits of a debt management plan is the reduction in
interest rates and waiver of late fees that a credit counselor might provide.
But not all agencies work with all creditors.
6. Is in-person help available?
Consider whether in-person counseling would be
right for you. Much counseling has moved to phone and internet communication,
but for some people, the greater connection of face-to-face sessions can be
worth the office visit.
See related: Credit counseling agencies get bigger -- but better?
Published: February 5, 2013