How To Choose A Credit Counseling Company?
The Federal Trade Commission recommends contacting non-profit credit counseling companies, like InCharge Debt Solutions, for in-person, over-the-phone or online credit counseling. Most non-profit credit counseling agencies like InCharge offer credit counseling for free.
The FTC website warns that non-profit status does not guarantee the services are free and suggests careful research before choosing a credit counseling company.
Take time to do research before choosing a credit counseling agency.
Five Characteristics of a Reputable Credit Counseling Company
- Nonprofit: Choose a nonprofit credit counseling agency like Incharge – that is a member of the NFCC, the National Foundation for Credit Counseling.
- Licensed and Accredited: Make sure the agency is licensed and accredited. The National Foundation for Credit Counseling (NFCC) requires member organizations to adhere to strict standards and regular audits for data security, counselor accreditation and results-oriented customer service.
- COA-Certified: Be sure the organization is certified by Council on Accreditation before signing up for their program. Be certain the counselors are certified, preferably by the NFCC.
- Low Complaints: Contact the state attorney general or Better Business Bureau for records of complaints and how the agency responded to complaints.
- Free Education: Choose an agency that provides free financial literacy education to clients and the general public.
For-Profit vs. Non-Profit Credit Counseling Services
The NFCC, which certifies credit counselors has approved 83 non-profit agencies. No for-profit companies are accredited by the NFCC.
“We pride ourselves on the fact that 100 percent of the money that consumers send our approved agencies, goes to the creditors,” Pam Carter, the senior director of membership at the NFCC, said. “We don’t hold anything back. That’s not always the case with the for-profit agencies.”
Credit counselors at nonprofit credit counseling agencies operate under strict state and organizational guidelines designed to insure they act in their client’s best interests. Non-profits are frequently audited by states to insure they comply with all of that state’s regulations. Non-profit credit counseling companies must demonstrate that they are acting in the best interests of all of their clients. For example, InCharge offers clients monthly newsletters with money-saving tips and stories of people who have gotten out of debt to help motivate clients to do the same.
Does Consumer Credit Counseling Work?
A recent credit counseling study has produced significant research findings for the debt relief industry, showing that credit counseling is effective in helping people pay off more debt and faster. Researchers at Ohio State University compared two groups of financially distressed people with similar characteristics. The first group received credit counseling and the second did not. Those who received credit counseling reduced their credit card debt by nearly $6,000 within 18 months of counseling. Those who had not received counseling, reduced their debt by only $3,600. Additionally, counseled participants’ available credit ratio was 19% higher than non-counseled available credit. Download the NFCC OSU Credit Counseling Statistics Final Report – 2016.
Data Highlights: Credit Counseling Improves Financial Habits and Confidence
The credit counseling study also tracked people’s feelings about their own financial situation. Three months after receiving credit counseling, surveys reported the following results:
- 67 percent said that credit counseling helped them better manage their money
- 68 percent said it helped them set financial goals.
- 70 percent said it improved their financial confidence
- 73 percent said they are paying their debt more consistently.
Credit counseling works because it provides people with the time and tools to focus on their financial situation. Nonprofit credit counseling provides a holistic, high-level view of an individual or family’s debts, assets, income and expenses before recommending a debt relief strategy. Credit counseling services work because the solutions provided are personalized and specific, and because counselors are well-trained and non-biased.
Additionally, credit counseling helps consumers consolidate credit card debts into one monthly payment, reducing missed and late payments.
Do Credit Counseling Clients Improve Their Credit Score?
Participants in the above-referenced study saw a 50-point average increase in their credit scores from baseline for those in the bottom 25-th percentile of clients, 18 months after counseling.
Alternatives To Credit Counseling
Before deciding to work with a debt relief company, take a moment to learn about the Telemarketing Sales Rule for debt relief companies which stipulates that no one can charge you advanced fees before they’ve offered you a service. Report violators to the Federal Trade Commission.
With debt consolidation, your debts are combined into one monthly payment. You can achieve debt consolidation with an InCharge Debt Management Plan – but to qualify, you must complete a credit counseling session.
With debt settlement, you pay only a portion of the total amount owed, and the lender forgives the remaining balance. High fees charged by debt settlement companies as well as the negative effect on your credit score may make debt settlement a last resort option for you.
If your combined debts are double or triple your household income and you don’t qualify for any interest-reducing debt relief programs, you may a good candidate for bankruptcy. A credit counselor can advise you as to whether or not bankruptcy may be the best option for you.