American consumers have long relied heavily on credit, and the Great Recession has only made it worse. The average credit card debt of American households now stands at almost $14,750. Add to that mix high unemployment, the housing crisis and skyrocketing medical costs, and it’s no wonder that more consumers are sinking even deeper into credit card debt.
Now, a growing number of consumers are looking for outside assistance to help get a handle on their debt and put their financial lives back on track. Last year, the two largest networks of nonprofit credit counseling agencies helped a combined total of 7.3 million people with their finances.
“A lot of self-worth is tied to your credit score, so most people feel really bad when they call us for advice” says Melinda Oppenheimer, a spokeswoman for Springboard Nonprofit Consumer Counseling, a nonprofit credit counseling agency. “But we’ve just lived through one of the worst economic downturns in our lifetime, and it’s not financially irresponsible to have a hard time. Millions of people are in the same boat.”
Getting help is commendable, but it’s important not to get sucked into a scam. If you’re considering getting help with your credit card debt, you need to distinguish between so-called debt settlement companies and legitimate credit counseling agencies. Debt settlement companies typically lure in customers by offering to settle their debt for pennies on the dollar; but most companies promise much more than they deliver. Credit counseling, on the other hand, can be a valuable service when offered by a legitimate nonprofit counseling agency.
If you’re looking for a financial coach to help you work your way out of excessive credit card debt or other debt-related issues, here are four steps to help you get the best results.
1. Make sure you choose a legitimate agency.
In the past, the shortcut to finding a legitimate credit counseling organization to work with was to simply look for a nonprofit credit counseling agency. Unfortunately, scam and high-fee companies figured that out, and many now operate under nonprofit status.
To find a legitimate credit counseling agency, look for an organization affiliated with one of the two major umbrella groups for nonprofit credit counselors:
Additionally, check to see if the agency is approved by the U.S. Department of Housing and Urban Development (HUD) to offer counseling on housing issues. Even if you don’t need help with housing, a HUD-approval means that the agency has undergone investigation by an outside party to ensure it is legitimate.
2. Look for an agency that can help you with your unique issues.
When choosing a credit counseling agency, look for one that offers the services you need. The best credit counseling agencies have a variety of options, from free education to one-on-one assistance in making a budget or interpreting your credit report. Good agencies will also be willing to communicate with you over the phone, email or in person. Be wary of agencies that don’t offer educational materials or that only take on consumers with large amounts of debt.
“If the only tool is the Debt Management Plan, keep shopping,” says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling. “A DMP is a useful tool, and is often the appropriate resolution. However, each consumer’s situation is different; thus the solution should be customized to fit your specific needs. A one-size-fits-all approach is a sign you should continue your search.”
In addition, before signing up, check out the fees. Legitimate nonprofits almost never charge money for education. And if other services do come with a fee, it should be a small one, only around $15. Avoid any agency that won’t give you full disclosure of fees before you sign on the dotted line.
3. Pick the best counselor.
Even at legitimate agencies, the quality of the individual counselors can vary. Inquire about a counselor’s education, training and credentials before you enter into a working relationship with him or her. If the counselor is a Certified Consumer Credit Counselor, it means they’ve passed inspection by the National Foundation for Credit Counseling and thus have had their financial knowledge vetted by an outside party.
Additionally, look for someone who has experience working with consumers facing issues similar to your own. It’s OK to ask for someone with seniority or for counselors who are experts in the areas in which you need help. In addition to expertise, you also want to find someone who understands your specific situation. Getting out of debt isn’t one-size-fits-all, and you need someone who understands what will and will not work for you.
Also, don’t be afraid to ask for a second opinion. If you don’t feel good about the credit counselor you met with, or if you just need more advice, seek help from someone else. Some financial experts recommend seeing at least three experts before committing to a working relationship with a credit counselor or to a specific course of action.
4. Recognize that the end is only the beginning.
Finding a credit counselor that you feel you can trust and are inspired to work with is well worth your time. Having a trained coach on your side will ensure that you make the fastest progress toward clearing up your debt and restoring your credit rating.
Keep in mind, though, that finding a trustworthy credit counselor is just the beginning. The best credit counselor in the world won’t be able to help you if you’re not willing to be honest with them and follow their advice. But if you can swallow your pride and lay everything on the line, you’ll be that much closer to living a debt-free life.