7 Steps to Finding the Right Credit Counselor

Legitimate agencies do not charge for counseling and ongoing fees should be modest.

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I don't know about you, but the collapse of the economy and stock market has made my financial plan look a lot like a piece of Swiss cheese that has seen better days - yellowing, curling up at the edges, and definitely giving off a bad odor. Sadly, millions of us seem to be facing Swiss-cheese financial futures these days.

If you're in that camp, perhaps a trip to your friendly neighborhood consumer credit counselor would be a good idea. Having someone other than your Uncle Lou take a look at your finances could be a godsend. A good counselor has seen lots of people like you before, and has developed solid suggestions on how you can overcome your current problems - and perhaps a wee bit of financial paralysis. A counselor can help you build a new financial plan that reflects current economic realities and is right for you. Finding the right counselor may be far easier said than done. Here are some steps to help increase your odds of sitting across the table from someone who just might make your life a lot easier:

1. How can I find a good counselor? I know there are online locator tools but how do I know their listings are reputable?

Seek recommendations from friends, colleagues, or church and community groups. The National Foundation for Credit Counseling (NFCC) has a locator that can identify a nearby counseling agency, as does another membership group, the Association of Independent Consumer Credit Counseling Agencies (AICCCA). You should look for credit-counseling agencies that are nonprofits (ask if they're chartered as a 501(c)(3) organization.) But even nonprofits have to make a living, so you should learn about how they charge for their services. NFCC and AICCCA agencies are not allowed to charge clients money for their services if they can't afford to pay. If you encounter a high-pressure operation that wants you to move quickly to develop a debt-repayment plan and pay them anything up front, you should find another agency.

2. Should I have to pay money for this service? I see TV ads for nonprofit counseling agencies but don’t know if that’s the same as free. Do some agencies charge fees and, if so, what should I expect to pay?

Credit counseling is often free and any subsequent fees are usually linked to a debt management plan to pay off your creditors over time. Such plans might extend up to five years in duration, and involve monthly payments to the credit counseling agency, which in turn pays off your creditors. In no event should a debt management plan enrollment fee exceed $75, according to AICCCA President David Jones. He adds that a monthly service fee should never exceed $50. Usually, both fees are smaller. ClearPoint Credit Counseling Solutions, a larger national agency, charges no enrollment fee for its debt-management program and its monthly payment tops out at $35, according to spokesman Bruce McClary.

Debt-management plans are only pursued in roughly one-third of the cases, but if a debt-repayment plan is a sensible way for you to proceed, agencies may receive a share of the payments you make to your creditors. These are not kickbacks - they're called "fair share" payments and they reflect the value to your creditors of the counseling agency's efforts to help you repay your debts. Also, they shouldn't add a penny to what you owe your creditors. A good agency will be upfront with you about any fair share payments it receives; these fees should never exceed 10 percent of your payment. Many non-profit counseling agencies also make money from government counseling contracts, which explains why their services can be free.

3. Is it typical for agencies to require me to sign a contract? What are the normal provisions it contains and what questions should I get answered before I sign such a contract?

Extensive contracts are not the rule, and you should not sign any document that obligates you financially. Debt repayment plans do require a contract, but its provisions are voluntary for consumers. "The contract will specify the monthly payment, the payments going to each of their creditors, the fees if any, and the expected duration of the plan," Jones says. "The debt management plan cannot be started until the contract is signed." If you need time to consider a repayment plan, tell the counselor you'd like to talk things over with your spouse or another appropriate family member. Good counselors should not force you to make an immediate decision, and you should be wary if the agency promises a quick solutions to your credit problems. "You didn’t get into debt overnight and you’re not going to get out of debt overnight," says NFCC spokeswoman Gail Cunningham.

4. What information should I bring with me to the first session?

Bring a pay stub or other proof of your family income. Bring current credit-card statements and other debt-payment obligations so the counselor can get an accurate picture of your situation.

5. Should I expect the process to take just one meeting or several? What’s normal?

An initial face-to-face meeting of 60 to 90 minutes is standard, plus follow-up telephone calls and in-person meetings as needed. If you enter a debt management program, you likely will be involved in several more meetings.

6. If I don’t feel comfortable with my counselor, what should I do?

Don't make any commitments, thank them for their time, and then go out and find another counselor. Cunningham acknowledges there are lots of quick-buck artists masquerading as counseling agencies when what they really want is to pressure consumers into debt-repayment plans that can generate income to them as well. "It’s like playing whack-a-mole," she says. "You get rid of one [bad agency] and another one pops up."

7. As with an important medical procedure, can I get a second opinion?

You should always be comfortable with a counselor and the advice you are receiving. By all means call a second agency to repeat this process if you need reassurance or don't feel the plan you've received is right for you.