TBO.com - TBO is Tampa Bay Online

Credit Counseling May Help You Pay Down Debt

ADVERTISEMENT

The Tampa Tribune

Published: January 18, 2009

If you're not in deep debt, I'm sure you have one friend or family member - if not more - who is.

Coming out of the holiday season, your debt can feel overwhelming. So maybe you made a New Year's resolution to make significant strides to pay down, if not eliminate, that black cloud over your head. How do you know if you can do it on your own or if you should give in and enlist the help of a credit counselor?

In general, credit counseling is for people who are budgeting with a fine-tooth comb, scraping together every extra penny, clipping every coupon, and yet still can't find a way to pay down their debt.

The right counselor will put you on a debt management program that will arrange to help you pay off what you owe at lower interest rates. Essentially, they negotiate with your creditors to give you a break.

How much of a break? That depends on the creditor, not you or the counselor's bargaining skills: Credit card companies generally have a schedule of interest rate breaks that they are willing to give. Fees and other penalties are generally waived, too, which can lead to huge savings if you've been delinquent on payments.

But keep in mind that it's not as easy as it sounds. In exchange for the reduction in what you owe, you'll need to agree to stop using your credit cards and not apply for additional credit. Once you do, and the program is set up, you'll start making payments to the counseling agency instead of the creditor. The agency will then distribute the money to your creditors, taking a monthly fee. You'll also pay a fee when you enroll in the program: $75 upfront and $35 to $50 a month is fairly standard.

Think this sounds like the solution you've been looking for? Here's what you need to know:

Shop around for agencies - You can't assume that every company you turn up in a Google search is legitimate. Narrow your search to a few nearby (I prefer you go see a counselor in person rather than work exclusively over the phone) and then make sure that they are nonprofit agencies recognized by the Better Business Bureau, with no history of complaints. They should also be members of either the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies. Once you have a list of names, call each and ask for a free consultation. They should spend half an hour or more with you going over the details of your debt. Keep in mind that credit counseling isn't for everyone.

Don't procrastinate - The longer you let your debt pile up, the worse the situation gets. Even if at this point, you're still making the payments on time, but you see difficulty in your future, call a counselor and have them go over your accounts. A good agency won't charge you for this initial meeting, so there's no harm in finding out what solutions are available to you.

The same goes for your creditors. As soon as you realize you might start slipping behind on your payments, pick up the phone and approach your creditor honestly, says Gail Cunningham, spokesperson at the NFCC. Trying to duck a creditor only digs you into a deeper hole.

Understand the effect on your score - There are a lot of misconceptions about this, but credit counseling probably won't do any damage to your score in the long run. It could show up on your credit report that you're in a debt management program, but when you start the process, your credit is likely already going to be trashed from months of missed payments and a high utilization ratio.

Arielle McGowen contributed information to this column. Jean Chatzky is financial editor for NBC's "Today" show, a contributing editor for More magazine, and a contributor to "The Oprah Winfrey Show."

Share this:

Loading Comments...

Email Print

ADVERTISEMENT