Ten tips: How to choose a reputable credit-counseling agency

By LAURA T. COFFEY

© St. Petersburg Times,
published July 22, 2001

More Americans are fleeing to credit-counseling agencies for guidance about how to manage their debt. A reputable credit counselor can be a godsend, helping you repay your creditors at reduced interest rates, set up a personal budget and avoid bankruptcy. But beware: Not all agencies have your best interests at heart.

1. Don't be embarrassed to seek help. It's probably a good idea to contact a counseling agency if your debt payments, not including your mortgage and car payment, have spiraled to 25 percent to 50 percent of your take-home pay.

2. Stay away from credit-repair clinics. The TV ads promise: "We can erase your bad credit, 100 percent guaranteed!" But don't be deceived. Such clinics, which are different from credit-counseling agencies, often charge hundreds or thousands of dollars to do what you can do yourself for free.

3. Be choosy. Credit counseling has become a big business, and even some non-profit counseling agencies are more concerned about collecting fees from you than giving you sound, personalized advice.

4. Find out what the counseling will include. A good counselor will sit down with you and discuss your financial situation in detail, devise a tailor-made action plan and provide you with ongoing support. A substandard counselor will simply ask you to fill out an application.

5. Ask about the counselor's training. Your counselor should have a college degree, as well as courses in lending, credit, budgeting, saving, investing, home finance and bankruptcy. Avoid counselors who have only about two weeks of training.

6. Know what to expect. Before counseling begins, a good counselor will want to see your pay stubs, credit card and loan statements and a completed form detailing your budget. Bad counselors will allow you to rely on your memory and provide rough estimates of your income and expenses.

7. Count the cost. A reputable agency will offer a free initial consultation, then charge about $15 to set up a debt-management plan and $10 to $15 a month for the duration of the plan. In contrast, some agencies require clients to pay an upfront fee of as much as 3 percent of their total debt.

8. Expect full disclosure. The agency should reveal that it receives most of its income through contributions from creditors known as "fair share." In other words, creditors give the agencies a cut of the money they retrieve from you.

9. Make sure your bills are paid. A counselor may tell you to stop paying your bills and send your consolidated debt payment directly to the agency. That's fine, unless your creditors have not agreed to the debt-management plan. If that happens, you could be hit with late fees and other problems.

10. Know what you're getting into. Depending on how much debt you have, a debt-payback plan can take as long as 48 to 60 months to complete. -- Compiled by Laura T. Coffey.

Sources: Consumer Reports (http://www.consumerreports.org) and the Federal Trade Commission (http://www.ftc.gov)

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