Ask Stacy: Where Can I Find Help With Credit Card Debt?
By Stacy Johnson
Here we are, knee-deep in another shopping season. Not a good place to be if you're also knee-deep in debt.
If you're overwhelmed by debt and can barely make even a minimum payment on your credit cards, there's free help out there. Just be careful where you look for it.
Here's this week's reader question:
First bit of advice: When you're in debt trouble, you'd do well to ignore ads, especially the kind with lots of capital letters and exclamation points.
Your articles have been a blessing. Perhaps you can shed some light on the topic of credit card bailouts. I keep getting these advertisements -- the latest says it's from the Department of Housing and Urban Renewal with a Washington, D.C., address -- that offer to "provide important information on how to lower your credit card interest rates and reduce monthly payments." My question is: Is there truth behind all the recent bids to assist me, at no cost and no fees?
Anything that sounds too good to be true, probably is -- right? If you've a moment, I'd love to hear your take.
Anyone claiming to represent a government agency or making bold claims shouldn't be trusted. For example, why would the Department of Housing be helping with credit card debt? Plus, a quick Web search will reveal there's no "Department of Housing and Urban Renewal."
The good news: There are reputable agencies out there, many providing free help. The trick is finding those who want to help you and not themselves.
Finding Help the Right Way
Decades ago, the first TV story I ever did was about credit counseling. Since that time, I've been intimately involved in this industry, serving on the boards of two credit counseling agencies and providing educational materials to many. I personally know the heads of nearly every large nonprofit counseling agency and association in the country.
While there are lots of shady players in this industry, there's no shortage of good ones. We've partnered with one that will help you right now. You can find them by clicking here. But whether you use our partner or not, you should know how these agencies work and what to look for. Here's a checklist.
1. Is the agency accredited? This is one of the first things you should consider before moving forward with a credit counseling agency. Although most are nonprofit, you should not simply select the first agency you run across. A leading source of accreditation in the industry is the Council on Accreditation. The National Foundation for Credit Counseling requires all of its members to have COA accreditation. The Association of Independent Consumer Credit Counseling Agencies also requires its members to be accredited by COA or one of two other organizations.
Next, the Federal Trade Commission urges you to check the agencies you are interested in with your state's attorney general and local consumer protection agency. Your state may also require credit counseling agencies to register with the state. If that's required, have they done so?
The FTC also says:
2. How will they help you? Credit counselors can provide lots of information and advice to regain control of your finances, including helping you establish a budget. All this advice should be free. If your situation warrants it, they may suggest a paid service called a debt management plan, or DMP.
A reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a firm doesn't do that, consider it a red flag and go elsewhere for help.
When you enroll in a DMP, the agency steps between you and your creditors. They contact your creditors and may be able to have some interest rates reduced and fees waived. They'll look at your income and expenses, then arrange a single monthly payment based on what you can afford, which could be significantly less than the total of the payments you're making now. You'll send that payment monthly to the agency, and they'll divide it among your creditors.
Typical DMPs last about four years. Complete it successfully, and you'll be debt-free. Note, however, you'll be asked to stop using credit cards until the plan is complete.
3. What effect will their services have on your credit score? Seeking advice from a credit counseling agency will not damage your credit score, nor will entering into a DMP. That's not to say some creditors won't enjoy seeing this on your credit history, and it will show up. But if you're already in the situation where you're paying bills late, this probably isn't your greatest concern.
4. What are the fees? As noted above, advice should always be free. If you agree to enter a DMP, you'll pay a monthly fee, but it should not be more than $50. And even that fee can be waived for those unable to afford it.
Another warning: If an agency is quick to direct you to a debt management plan without going over the details of your situation and considering other options first, that's a bad sign. There's a reason this is called credit "counseling." They should sound like a counselor, not a used-car salesman.
5. Do they offer additional resources? The point of credit counseling is to make your debt more manageable and help you establish more sound financial habits. Many agencies offer personal finance courses that cover budgeting, saving and debt management to help accomplish this objective. They should not come with a price tag.
7. Is there a contract? Make sure that every aspect of the service is included in a written contract. Read it before you sign.
8. How do they promote themselves? Reputable nonprofit credit counseling agencies normally don't have huge advertising budgets and don't make unrealistic claims. As Cheryl said, "Anything that sounds too good to be true, probably is -- right?" Right, Cheryl.
Whatever You Do, Do Something
The most common mistake made by many with debt issues is waiting too long to get help. This is natural. We blame ourselves, become embarrassed or ashamed, then put our heads in the sand. This serves only to build your stress and make the ultimate solution more difficult.
Let me assure you, if you have a debt problem, you're more the rule than the exception. You've got nothing to be embarrassed about. There's someone who can help, and they're waiting for your call right now. It will cost you nothing and take a monster weight off your shoulders. If you need help, or even think you might, make the call. You'll be glad you did.
Have you been through the credit counseling process? Share your experiences in the comments below or on our Facebook page.