Credit Counseling Agency Cautions
Using a reputable credit counseling organization can help some consumers get back on track with their financial obligations and help manage their budget better. Better financial management of existing debts will certainly help improve an individual’s credit history and credit score. But, credit counseling services are often not the solution they are advertised to be.
Credit counselors should provide advice to consumers regarding managing money and debts, help develop a workable budget, and offer various educational materials to help the consumer gain control of their finances. Credit counselors can help develop a personalized plan to solve that helps to solve a variety of money problems. Unfortunately, too many credit counselors charge a fee and provide very little substantive assistance to consumers that need financial help.
To avoid working with a credit counseling organization that provides little assistance, there are some questions you should ask before choosing a credit counselor.
Ask that the credit counseling organization to send or provide material regarding their services in advance. Find out if they offer any educational materials for free. Do not provide account numbers and personal finance information other than your name and address before any counseling agency will agree to send you information about their services. Avoid organizations that charge for information.
What kinds of counseling, debt management and educational programs does the counseling organization provide? It is always best to work with a credit counseling organization that provides a range of services, including budget counseling, and savings and debt management classes. Educational information is good but most consumers need relief and help form the debt and credit problems. The FTC recommends that consumers avoid organizations that primarily push a debt management plan (DMP).
Check and see if there are any upfront fees for the services and what all of the costs will be for the program offered. Some agencies charge up front fees for their debt management programs and other services. These fees may be so high that getting assistance is more costly than it is beneficial. Get specific information on fees in writing before going forward.
Is there a written agreement or contract for the services rendered? Don’t sign anything without reading it first. Make sure all promises and services to be performed are in writing.
What kind of training do they have for their staff and what qualifications do they posses to assist the consumers? A good counseling agency provides its counselors with regular training. Ask if they accredited or certified by an outside organization? Do they work with lawyers, certified financial planners, and other professionals?
If you are using a debt management component of the counseling services, ask if you will receive regular updates and reports regarding your account status? Within the debt management program, find out how often the creditors are paid. Ask if the credit counselor will be able to help with all of your debts? Some agencies offer little assistance for secured debts like car payments or mortgages, or government debts like taxes and student loans. Make sure you receive the right service for your needs.
What kinds of measures are used to protect your information? Check to see that the credit counseling organization has some process to keep your financial information and identity confidential and secure. Be sure you know the agency’s privacy policy. It is important that the agency you select has sufficient security in place to protect your confidential information.
Be careful with any credit counseling organization that guarantees they will be able to remove your debts or promise that these debts will be paid off for far less than you owe ( debt reductions are likely but no firm can assure it will happen ) or organizations that require large monthly fees or upfront fees or promise that using their system will have no negative impact on your credit report or claim that they can remove accurate negative information from your credit report. Credit help and credit score help shouldn’t cost an arm and a leg.
Rules to Follow with Debt and Debt Collectors
We all want to pay our bills on time but sometimes due to some financial crunch it is not possible to make even the minimum payments and meet due dates. If a debt goes unpaid for an extended period of time, creditors may turn your account to a collection department or agency. It is true that debt collectors have the right to demand payment and take legal action if necessary, but often they would rather collect a portion of the debt than have to take more drastic actions.
Before you start dealing with delinquent accounts and collection agencies, take a look at your monthly budget. Take a real look, not a wishful peak. If your budget is upside down or underwater it is time to address this situation. Half the world has too much debt and is struggling; no one will look down on you because you are struggling too. But address your budget to obtain your own financial freedom, figure out how far behind you are and then what you can fix or maybe what you can not fix. Stress will kill you, not the credit card bill.
If your credit is not in terrible shape already, it may be possible to reduce your other monthly expenses. This may very well mean making hard choices or changing your lifestyle to fit your income and get your bills under control. A little bit of pain to reduce expenses is well worth it to alleviate the stress and maintain fair to good credit. Consider all options such as, selling a household goods, getting a part time job, taking equity out of your home, applying for a non secured signature loan, obtaining a loan from a relative or other money raising endeavors.
If the wolves are already at the door, that is the debt collectors and collection agencies, handle these debt collectors courteously and promptly. Often, creditors are more agreeable to working with consumers who admit they are in trouble and need some help with their budget and working things out.
Before you handle what it is that is coming your way, it is important to know where you stand. Try to understand what debts are delinquent, how much you owe and what your capacity is to pay these debts back. This is fairly standard budgeting 101. Unfortunately, for many consumers who are behind the eight ball the number one response to bill collectors and over indebtedness is to bury their head in the sand. Don’t be alarmed, this is a common response. But, try to pour an extra cup of coffee one morning and wrote down where you stand.
In the big picture, you can’t go to jail for owing money on your car or credit card or medical bill. Relax, but spend time to review where you stand. Delinquent debts are going to be reflected in your credit report and impact your credit score for the worse but you can rebuild and money is just money it is not love or happiness.
It is usually best to act quickly for the most effective resolution. Heck, if you can’t settle the bill to your satisfaction you can always try again. The faster you address the issue early on, the more likely you are to help save your credit report and credit score but equally important if you can not reach an agreement in the early stages with the bill collector, let them stew for awhile while you work on plan B.
Be prepared to negotiate. Collection agencies are almost always authorized to negotiate repayment terms that are significantly below the total amount of the debt. If you can’t pay the full amount, but are willing to pay a percentage, tell them so. In many cases, they will prefer to get something from you than nothing at all. Don’t cave in too early, make them work for their money and pay as little as you can.
Make sure not to offer too much information. Don’t give a collection agency your bank account information or credit card number. If at any time you feel pressured, slow the conversation, out the conversation on hold or if you are really feeling overwhelmed exercise some power and hang up. High pressure collectors should be hung up on or better yet if they are caught engaging in illegal collection activity they should be sued.
Collection agencies have had a reputation for bullying and even using threatening tactics to try to intimidate people into repaying debts. This kind of abuse and harassment is illegal and should be reported to the FTC.
The Fair Debt Collections Practices Act is a Federal Law meant for the protection of consumers. The Fair Debt Collections Practices Act outlines specifically what collection agencies can and cannot do when trying to collect unpaid debts. Some of the rules they must follow such as not being allowed to call at your workplace without your approval. If you need to or want to, you can send a letter using registered mail to the credit collection agency asking them to stop calling you. By law, the collection agency must comply.
Obscene language or threats of violence are absolutely forbidden and a collector is not allowed to threaten you with false statements. The law also defines the type of information a debt collector is entitled to collect from the debtors. The FDCPA spells out the rules for legal action that can be taken against the creditors and the collection agencies for violating the Act.
You should know your rights and demand to be treated fairly and with respect when you work with debt collectors and collection agencies.
If you are having too much difficulty making ends meet and your credit is already damaged you may want to put a hold on everything by looking into a bankruptcy filing. Consider this option if you are so far in debt that you can never repay it. Issues regarding bankruptcy should be reviewed with an attorney or at least a credit counselor. Bankruptcy can have the biggest impact on your credit profile and may be the least desirable from a credit standpoint. But, when it is necessary, it is a viable option that should not be ignored.
In the early stages of credit collections and debt management, the goal is to try and rearrange your budget and clear up the debts and keep your credit record from too much damage.
Get Out of Debt, a Starting Point
Debt is in every household. Too much debt can be paralyzing and you may be in over your head and not even fully realize it. If you suspect that you’re carrying too much debt in the form of credit cards, mortgages, car loans and other debt instruments, you need to determine your exact position and then, most likely, begin working to free yourself from the weight of the financial burden.
Too Much Debt
It’s expected, and actually a good thing, to have some debt. Your mortgage, for example, is one of your largest tax advantages. But there are few, if any, perks to having a balance on credit cards or other loans. But despite this Americans continue to spend using credit cards. The average American now has over $9,000 in credit card debt and that number’s not getting any lower.
Acceptable debt levels vary by the individual, but a good rule of thumb is looking at percentages. If 20% or more of your take home pay is going to debt that is not of the mortgage variety, you’re looking at too much. Likewise, if more than 30% of your gross income is tied up in your home, you are most likely becoming or already are overextended.
It may be that your numbers are fine, but you still feel finances are tight. If you struggle to make the minimum payments on your debts or can’t even list what you owe on what loan, you’re looking at too much, and it’s time to make a change. Many people who have too much debt don’t think about it. They get their bills in the mail and make the minimum payments or even end up paying late fees on a regular basis without much thought of paying off the whole balance. This is how individuals go deeper into debt and incur more stress.
Making a clear decision to get involved in debt elimination and finding out how to create a plan will actually get people into a position of less debt, better cash flow and less stress. The process will certainly help your credit, credit report and credit scores along the way. Making a plan to get out of debt is the starting point.
Budget
The first step in resolving your debt is to budget correctly each month and monitor the money you have. First, you need to determine what your monthly income or earnings are and what your expenses are. For an entire month, keep track of all spending. Where is your money going? Write down your bills and keep receipts from credit card transactions. Then, at the end of the month, you can collect your items in a single list and tally up the total. If this number is higher than your income, you know you’ve got some work to do.
Write down the names of the different accounts that you have to make payments on, the order they need to be paid, and how much money you need to eliminate that debt. Divide those transactions into essential ones and nonessential. Bills are essential, but some bills such as cable or cell phones may not be. It’s a personal decision. Nonessential items are things such as eating out, entertainment and travel (unless its part of your career.) As you make your budget, you will be able to identify what your spending habits are. The next logical step is to items to remove the nonessential ones. Cut back on eating out and stick to the free coffee in your employer’s break room. Take the bus rather than trying to park downtown and cancel all the premium packages on the cable you never watch anyway. The key here is to eliminate or at least reduce expenses that are lowest in priority. Trim the fat from your spending and design a budget that is reasonable, yet tight.
Paying Down Debt
Once you have your spending under control, stop spending on your credit cards if possible. If you must charge things, use a debit card so that the money comes directly from your bank account or open a new account with a low limit to generate a balance that you will now be paying off monthly. Then tackle the old debt.
The plan for getting the old debt paid off is to focus on one debt at a time. You still make regular payments on all of the debts that you can, but only focus on paying off one at a time. Pay off the loan with the highest rate of interest first. The higher the interest rate on a credit card, the more you pay over time. Pay the minimum on every card except your target. Throw as much as you can toward that card until you have it paid off. In the beginning, cut back on expenses as much as possible to get the first debt paid off. Once the first debt or credit card is paid off, you take the money that you had been applying to that debt and apply it to the next debt that you want to pay off. Then move on to the next card – this one should have the next highest interest rate. Finally, you’ll have all of your debt resolved and you’ll be free to move forward.
The creation of a budget is always a good project so you on work on a path to successful debt management and elimination and then stay on a plan to live a better lifestyle without the need for excess debt.
Using Credit Wisely
Now that you’ve gone through the trouble of paying off your debt, you must work to eliminate the possibly that you’ll end up in the same situation again. Save for anticipated and unanticipated expenses to keep from using your credit cards in emergencies. Find credit cards with a low interest rate should you wind up with a small balance for a month or two. If you do find yourself using your credit card, be as frugal as possible and use it only for items that are long term investments, not incidentals such as travel or meals out.