10 Tips to Find Free or Low-Cost Help to Conquer Your Debt
By Marilyn Lewis
Looking for help with debt? You are not alone. Nearly a fifth of Americans with debt told pollsters recently that they expect to die in debt. Although most Americans don't carry a balance on credit cards, about 38 percent of us do. Those carrying a balance in 2013 owed a median (half owed more, half less) of $2,300, according to the Federal Reserve's Survey of Consumer Finances.
Fortunately, there are many excellent, trustworthy credit counseling agencies able to help. "Unfortunately, customers of debt settlement companies often achieve little relief, and far from becoming debt-free, many end up in worse financial condition," Markita Morris-Louis, an attorney for a Philadelphia-based nonprofit that helps consumers with debt and financial problems, wrote in a column in the Delaware County (Pa.) News Network.
The federal Consumer Financial Protection Bureau explains how to tell the difference between a credit counselor and a debt settlement company.
Find Trustworthy Help
To be safe, get financial counseling from a nonprofit agency. Here's where to find a good one:
- The National Foundation for Credit Counseling is a national network of agencies that are vetted and accredited by the Council on Accreditation. The foundation's agency locator shows local, regional or national organizations operating near you that provide credit, debt and budget counseling in person, online or by phone. You can get started by submitting information online.
- The Association of Independent Consumer Credit Counseling Agencies represents independent nonprofit agencies providing credit counseling and debt help to consumers. The agencies are accredited by the Council on Accreditation.
- Other sources of help. "Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs," the Federal Trade Commission says. "Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals."
Trustworthy credit counseling agencies offer help with reducing debt and establishing and maintaining good credit. They can help you set up a budget. With their debt management plans, you may be able to have fees waived and interest rates and monthly payments reduced. But they can't reduce the balance (the total amount) of debt you owe.
ClearPoint Credit Counseling Solutions, a NFCC network member, explains a debt management plan: "It's a systematic, step-by-step, personalized plan for paying off 100 percent of your debt. Participants make a single monthly payment to a consumer credit counseling service such as ClearPoint, and the agency distributes the funds to their creditors." Expect to take three to five years to pay off your debts.
Credit counselors can negotiate with your creditors to reduce your payments by lowering your interest rate or spreading payments over a longer time. But be wary of companies promising to reduce the amount of debt you owe. The CFPB says to distrust debt settlement companies that "typically offer to pay off your debts with lump sum payments that are less than the full amounts you owe. For example, for every $100 of a loan that a creditor agrees to forgive, the debt settlement company will charge you some portion in fees."
If you sign up for a debt management plan, make sure it includes all of your debts, not just some. And be certain that you'll be able to receive regular reports on your accounts. The National Foundation for Credit Counseling explains in detail how to assess debt management plans and credit counselors. When shopping for help managing your debts, here's what to look for:
- Free or low-cost counseling. Many nonprofit credit counseling services provide free advice about credit, debt and budgeting. And when it comes to getting help with a debt management plan, USA.Gov says there's no reason for an agency to charge consumers high fees: "The cost of setting up this debt management plan is paid by the creditor, not you."For example, for a debt management plan, GreenPath Debt Solutions, an NFCC member, charges a one-time setup fee of zero to $50 and monthly fees averaging $36.
- Straight talk about fees. Don't trust a company that gives you the runaround when you inquire about the cost of its services.
- Free information. You should be able to learn all the details you need about an agency and its debt management plans for free. Don't surrender your personal details to get information about a company or its fees.
- Free help for serious hardships. Agencies should waive fees if you have a serious financial hardship. "If an organization won't help you because you can't afford to pay, go somewhere else for help," advises USA.gov.
- A variety of services. Stay away from businesses that only offer debt services, and avoid companies offering "debt reduction" plans. Trustworthy agencies offer a variety of types of help, including budget, credit and debt counseling; debt management plans, in which you make a single payment to the agency, which pays your creditors and helps you get debts under control and paid off; and possibly counseling on bankruptcy, student loans, housing and mortgages.
- Education. Trustworthy nonprofits typically offer free public classes and workshops on financial subjects. "The absence of any true education offered to the general public is a red flag," says the NFCC.
- Professionalism. Back away if you're feeling pressure or hear unrealistic promises. Be suspicious of "counselors" who push products, come on like salespeople or offer a one-size-fits-all solution.
- A thorough interview. An agency should take an hour or more to get the details of your financial picture, including income and debts. Be prepared to bring copies of bills and credit card and bank statements. Some clients bring along bags of bills and statements they've been afraid to open.
- No minimum debt size. You should be able to get help whether your debts are large or small. If a company says it requires a minimum amount of debt to help you, you're in the wrong place.
- No black marks. Check out counseling agencies you are considering. Learn if your state attorney general has received complaints about an agency. Locate additional consumer protection resources in your state at USA.gov.