Thinking about seeking the help of a credit counseling agency to pay off debt?
Are you worried about being unable to manage and pay off your credit cards? Consider the following advice carefully when developing your plan to get out of debt.
1. Do it yourself
Managing your own debt is always the best option because you have the most control over your financial situation and do not face the risk of fraud. If you have a lot of credit card debt, check out our advice on managing credit cards.
2. Consider the implications before working with a credit counseling agency:
If you can't do it yourself, a credit counseling agency may be able to help you manage your debt, but it is important that you consider the possible implications of working with such an agency:
Doing it yourself
|
Credit counseling agency
|
|
Price: $0
|
Price: initial fees ($15-$100), plus monthly fees of up to $50
|
|
Time invested: Significant
|
Time invested: Initially large then decreasing
Note: Keep in mind that credit card companies are not obligated to enter into a debt management plan, so it's possible that you may still be managing your own debt on one or more cards.
|
|
Stress level: Possibly high
You will have to devote more time and energy to the process yourself, which could cause stress.
|
Stress level: Low
You don't need to think about payments as frequently, although it is not advisable to leave all of the monitoring to the agency!
|
|
Level of control: Significant
You have complete control over when you make payments.
|
Level of control: Low
The agency can make late payments, which you'll have no control over.
|
|
Responsibility: You and no one else.
|
Responsibility: Responsibility for the payments covered on your plan is primarily that of the agency, but you should also monitor them. If you have cards that don't accept the plan, you will continue to have the responsibility of paying off those cards.
If the agency has most of the responsibility for making your payments, it is recommended that you maintain communication with the credit card companies, calling them periodically to ensure that the agency is making the agreed payments. If not, your credit may suffer!
|
|
Personal credit risk: If you are disciplined in making payments as planned, future harm to your credit report will decrease significantly.
|
Personal credit risk: Your credit history can be affected by being on a debt management plan. There is no guarantee that your agency will make payments on time or that they will be reported on time - since many credit card companies are accepting payments lower than the minimum, they may continue to report lower-than-minimum payments as "late" each month. At the end of the plan, you should close the cards and start rebuilding your credit.
|
|
Risk of fraud: None
|
Risk of fraud: There is a great risk of fraud with dishonest agencies.
|
3. Make sure you find a trustworthy agency
After considering these possible implications, if you still prefer to use a credit counseling agency be sure that you are working with one that is trustworthy!
There are many cases of fraudulent agencies that have taken money from consumers without paying off their credit cards.
You can get information about the practices of each agency you are considering from the following sources:
In addition, pay attention to the following warning signs from typically fraudulent agencies:
- They offer you a debt management plan without thoroughly analyzing your financial situation
- They charge excessive initiation or monthly fees
- They ask you to make payments before they negotiate with the credit card companies - (It is recommended that you call the companies to check if the agency has contacted them first)
- They demand your personal information (especially account numbers) before giving you information about the agency and its services
- They tell you not to contact your creditors. Remember that the principal relationship should always be between you and the credit card company
- Everything sounds like it's going to be incredibly fast and easy!
The Federal Trade Commission has more information on how to protect yourself from fraud when choosing a credit counseling agency.
Given the risks of fraud and damaged personal credit, the option of working with a credit counseling agency to create a debt management plan may no longer be appealing.
The best way to manage your debt is to do it yourself! If you do, it's crucial that you stay disciplined and promise yourself to make the time to put together a budget, develop a plan, and implement it correctly.
Good luck!