If you’re at a point where you are having credit card problems, facing staggering debt, are receiving overdue notices, or getting calls from collection agencies you may feel scared. If you’re overwhelmed, can’t figure out how you are going to get out of this, or just feel like you could use someone with some more “financial smarts” than yourself to help you through this period, consider getting some professional help.

There are several types of financial and legal professionals who may be able to help you. You can typically find their services under “financial planning consultants” or “credit & debt counseling” in the yellow pages or through your local Better Business Bureau. Here’s an overview of the types of services you may be interested in learning more about:

• Nonprofit credit counselor. Nonprofit credit counseling organizations can be a great source of encouragement and real help. Accredited nonprofit organizations such as the Consumer Credit Counseling Service (CCCS) can help you pay off debt and regain your financial footing. They often offer free courses to educate you on financial basics such as understanding and managing credit, how to reduce debt, creating and keeping on a budget, etc. 

What professional organizations/associations are you affiliated with? The National Foundation for Credit Counseling (NFCC) is the oldest financial counseling association in the U.S. Other organizations that are good affiliations for a credit counseling service are the Council on Accreditation (COA), and the Association of Independent Consumer Credit Counseling Agencies (AICCCA). You want to be sure to use a nonprofit counselor that is affiliated with/accredited by, at the very least, the NFCC and preferably all of these organizations.

• How are your counselors trained and are they certified by any professional organizations? What education or background do you require them to have?
• What fees do you charge? Nonprofit counselors and agencies will offer at least the initial meeting for free and then will list a typically reasonable list of fees for services. BE SURE to get in writing what services they provide, what the fees are being used to cover and what recourse you have if you want to cancel their services. Some agencies do something called “front-loading,” which means that they take their entire fee out of the first payment you make on the payment schedule they work out for you to pay off your creditors. The problem with front-loading is that it keeps you constantly one month behind (at least) on your payments to your creditors. Avoid agencies that front load their fees.
• How long have you been in existence and how many clients have you served?
• Do you have a list of references/clients that I could contact to ask about their experience with your organization?
• Are your services confidential?
  
The credit counseling industry has grown tremendously over the past several years. Unfortunately it’s not a highly regulated industry, meaning that there are not a lot of federal or state laws overseeing these companies’ activities. To make sure you are using a reputable organization look for, or ask about, the following things:

 

• Lawyer. If you feel that debt collectors are harassing you or if you don’t see a practical way to be able to repay your debts or your debtors are threatening court action, you might want to consider working with a lawyer. Talk with trusted family members, friends and coworkers to get referrals. Make sure that you are not charged for your initial meeting, that the lawyer will be willing to talk with you and not just meet you in court, and that your lawyer has experience in handling cases like yours. Make sure you can afford his or her services before signing any papers. If you’re worried about affording a lawyer, ask if he or she will consider reducing the fee or creating a payment schedule, or look in the phone book for a nonprofit legal services organization.
• Debt/credit repair clinics and debt consolidators. Beware of firms or organizations that advertise with slogans like “We’ll repair your credit problems for free!” or “Get rid of your debt forever!” The promises sounds enticing, but these clinics promise what they can’t deliver and they charge you a fee. No one can promise that they can get you a loan or credit card, or make your credit report blemish-free, or “erase” your debt. Most of what they will charge you for are things you can do for free. For example, under the Fair and Accurate Credit Transactions Act you can obtain a free copy of your credit report from the three major credit bureaus (Equifax, Experian and TransUnion Corporation). Visit the Annual Credit Reports website to learn how and then write the three major credit bureaus if you need to correct any errors on your report.

Unfortunately even many “non-profit” debt consolidators or debt/credit repair clinics are thin covers for “for-profit” businesses that they are associated with such as sub-prime lenders. These types of businesses try to steer people with credit problems to obtain a high interest rate loan through their subprime lending business as part of their “counseling.” What a debt consolidator is supposed to do is enroll you in a Debt Management Program (DMP), much like a nonprofit credit counselor. A DMP is a plan to consolidate all your debt into one payment, whereby you pay the consolidator and then they negotiate with your creditors to lower your credit fees, payments, and interest rates. The consolidator takes your monthly DMP payments and uses that money to pay off your new, consolidated loan.

But often consolidators or clinics will simply take your money, pay off some debts and then you’ll never hear from them again. A debt consolidator should offer more than just creating a DMP – they should offer classes or help in budgeting, understanding credit issues, how to use credit wisely and whether or not to consider filing for bankruptcy. You want to be very sure about how the consolidator is using your money to pay off your loans – how much of your fee is going to the debt consolidator vs. your creditors?

Whereas a debt consolidator or repair clinic promises to reorganize and pay off your debt, a credit counseling agency will walk through your entire financial picture and educate you about how you got into your current financial difficulty so that it doesn’t happen again. Credit counseling agencies will not only help you work to resolve your current credit issues, but they want to equip you to become more financially confident and responsible. People considering using a debt consolidator may just want help in resolving a one-time credit crisis and are willing to pay someone else to do it. Credit counseling agencies are more inclined for you to be part of the process and they will likely want a longer commitment to work through your financial situations. Whomever you choose to work with should work with you until your credit problems are resolved (debts are paid off).

• Credit Card Companies. Many credit card companies now have in-house collection departments that will negotiate with you to work out deferred payments or other repayment options on your credit card debt. Using these services may help you pay down one debt but they are not going to help you solve bigger financial issues that got you to this point in the first place.
  
• Housing Counseling Agency. For a list of other financial professionals that you may want to consider approaching for help with your finances or financial situation, click here.