When to Seek Credit Counseling
by Francine L. Huff
Debt Relief Options Columnist

If you're devastated by debt you may need some help getting your finances under control. But it's not easy to know who to turn to for help with debt relief. Credit counseling is one possible solution to your debt worries, but it's important to determine when to seek help and from whom.

What Is Credit Counseling?
A credit counselor may be able to help you set up a budget, save more money, cut your spending, and tackle your debts. But keep in mind that credit counseling isn't a quick fix solution to your debt problems, and you'll need to do your part. A good credit counselor will emphasize financial education and not just push a fee-based debt management plan. It's important to check out any credit counseling service carefully to make sure the counselors work in your best interest.

Debt Management Plans
People looking for debt relief options may turn to a credit counselor to help them get high payments on credit cards and other debt under control. After undergoing credit counseling, you may decide to enroll in a debt management plan. By using a debt management plan you'll deposit money each month with the credit counseling agency, which will in turn make payments on your bills. An advantage of these plans is that credit counselors may be able to negotiate lower interest rates and fees. However, debt management plans don't work for everyone, and you should make sure you understand all the details of such an agreement before signing up -- especially how much of your payment to the agency will go toward paying off your bills.

Are You Thinking of Bankruptcy?
If you're situation is so dire that you're considering bankruptcy, you'll have to get credit counseling before actually filing any paperwork. Credit counseling must be completed within six months of filing for bankruptcy. Accredited credit counseling agencies must work with you even if you can't afford the fee, which is capped at $50. Credit counseling can be done in person, over the phone, and or via the Internet. In the best-case scenario, credit counseling can help you avoid bankruptcy and find another solution to paying off debts.

Credit Counseling Checklist
When checking out credit counselors it's important to ask some key questions to choose the right agency:

• Will they send free information about their services without you having to provide a lot of personal information?
• Have any complaints been filed with your state Attorney General or the Better Business Bureau?
• Are there any set-up or monthly fees for services?
• Will you receive a written contract for services?
• What kind of qualifications do counselors have?
• Do they make too-good-to-be-true promises such as guaranteeing they can remove your unsecured debt or that they can remove negative information from your credit report?

Don't be swayed to use credit counseling just because an agency says it's nonprofit. Some companies that say they're nonprofit charge fees for their services and aren't necessarily legitimate. Find out if credit counseling agencies are required to be licensed in your state, and if so, avoid unlicensed firms no matter how good their claims sound.

Sources
Federal Trade Commission
Bankrate
"New bankruptcy law requires credit counseling," by Amy Buttell Crane, www.bankrate.com.