Housing/Credit Counseling

• What is Credit Counseling?
• Do I Need Credit Counseling?
• Before Entering an Agreement
• Finding a Counselor

What is Credit Counseling?

Credit counseling is a process offered to consumers to avoid incurring debts that cannot be repaid. Credit counseling often involves negotiating with creditors to establish a debt management plan (DMP) for a consumer. A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client. Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan.

Do I Need Credit Counseling?

If you're able to pay your bills and are current on all your accounts, you almost certainly don't need credit counseling. If your interest rates are too high, you usually can negotiate a lower rate with your credit-card companies just by asking -- or threatening to move your account elsewhere.

Here's when you might think about full-scale credit counseling:

• You can't pay the minimums on your credit cards.

• You're consistently late paying one or more of your regular bills.

• You're being hounded by creditors and collection agencies.

• Your efforts to work out reasonable repayment plans with your creditors have failed.

Be warned: If you're too far in debt, credit counseling may not be able to help. There are limits to how little your creditors will accept, and a credit counseling service may not be able to cut your payments enough to either give you breathing room or get you out of debt. If that's true, bankruptcy may be the best of bad options.

Your payments also shouldn't stretch on for years. The typical plan takes two to four years to complete. Responsible credit counselors say bankruptcy is usually the better option if the repayment would take more than five years.

Before Entering an Agreement

Financial stress can often lead individuals to sign into agreements without thinking through the process. Your best defence is education, gather up information to help you make the best possible choice. Research credit counseling services before entering into an agreement. Consumers should shop around and compare services of credit counseling bodies and take note of the different fee structures of for-profit and not-for-profit credit counseling, as well as what services are offered..

You should investigate the company or service carefully before signing up. Red flags to avoid include:

• Big upfront fees. Consumer Credit Counseling Services typically charge a $10 set-up fee. If you're paying a lot more, you may be the one who's getting set up, unless you're getting extensive and personal money coaching that could justify the fee.

• No accreditation. Legitimate credit counseling firms are affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

• Delayed or missing payments. Some companies pocket your first months' payments as a fee, rather than passing the money on to your creditors. Missing payments can hurt your credit rating. Find out how much of each monthly payment is going to your creditors, and when it will be sent to them.

• Unrealistic promises. Some companies falsely promise that you can settle your debts for little or no money, without hurting your credit rating. Legitimate credit counseling services help you pay back what you owe, albeit at lower interest rates, and acknowledge there may be some affect on your credit rating and ability to obtain new credit.

Finding a Housing Counselor

The Department of Housing and Urban Development have approved lists of free Housing Counselors and are the best resources to start your search.

HUD Approved Housing Counseling Agencies By State