Debt Consolidation Counselors: What Do They Do?
Debt consolidation
is often the best solution for those who are overwhelmed by a monthly stack of bills, afraid they are about to fall behind on their payments, or who can only make the minimum payments on their
credit cards. Simply put, a
good credit counselor will seek to:
- Reduce the interest on your outstanding debts
- Reduce or eliminate late fees or penalties
- Negotiate payments that will reduce your credit card balances quickly within your budget
- Offer credit counseling so that you won't make the same mistakes again
- Prevent you from going further into debt by limiting your access to credit
Choosing The Right Debt Consolidation Counselor
With thousands of
debt consolidation companies
out there, however, how do you know which
debt counselor is right for you? The process can be very confusing - and some
debt consolidation counselors will take advantage of your fears and overcharge you for
managing your debt. Here’s what to look for (and what to look out for) when choosing the right
debt consolidation counselor:
The Ability to Maintain Account Flexibility throughout the Debt Consolidation Counseling Process
Each of your credit accounts should be addressed individually. While the
goal of a debt counselor is to negotiate a lower interest rate for you, this may not always be necessary. If you have a credit card that already has low interest, it shouldn't be in the program because (a) it won't help you and (b) you’ll be paying a fee on it for them to process the rate.
You should also be able to keep at least one credit card out of the program for travel, business and emergency purposes. If they insist you have to include all credit cards in your debt consolidation plan, steer clear.
Good Debt Consolidation Counselors Provide Good Customer Service
Get a quote and then follow up with some questions. If they assign a
debt counselor specifically to your account who can answer your questions and
explain the procedure clearly to you, then they will probably continue to provide
debt assistance to you as time goes on.
"Multi-Purpose" Debt Consolidation Counseling Offers: Beware
If they offer a vague "analysis" of your financial situation for a fee, be wary of that
particular debt consolidation company. This may simply be their way of getting
your information so that they can then do a more detailed sales pitch and make some easy money.
A debt consolidation-counseling quote should never cost you anything.
Your Debt Counselor's Ability to Provide Concrete Timelines for Your Debt Consolidation
Your credit counselor should be able to tell you how long it will take to
pay off each and every credit card. If the only answer you can get is,
"Two to four years," ask for a breakout for each individual account. If debt consolidation counselors can't provide this, they are hiding something. The payoff time and amount is different for every credit account, and you have the right to have that information.
Debt Consolidation Counselors Need to Provide Honest Answers
Some debt specialists offer "good payer" programs or "cash rewards." This isn't free money; it is a program where creditors, as compensation to consolidation companies for making sure you pay your debts, occasionally refund small amounts to the counseling company. Usually, the credit counseling company will split this with the client. It's a nice incentive program that benefits everyone and can give you a bit of extra cash every six months or so.
Note: This is great, provided your debt consolidation counselor tells you this up front. But beware - if they disguise this as a reward or bonus as though they're giving you a prize, they’re being dishonest. Any time a credit counselor offer you money, ask exactly where it’s coming from and for what. If they try to make it seem better or different than what it actually is, they are probably dressing up the facts elsewhere as well.
Evaluate Quotes from Various Debt Consolidation Counselors
The monthly fees charged by a debt consolidation counselor for their
debt assistance should generally be
no more than approximately 10% of what you will be paying each month for them to handle your account. If it goes much higher than this, be cautious and ask for a breakdown of how the money is used. Make sure there are no debt consolidation "start-up fees" or other hidden costs that will arise later.
A Debt Consolidation Counselor's Legitimacy Should Be Verified
This is simple: Call the Better Business Bureau and ask about the debt consolidation counselor you are considering. When you begin talking to the company, ask if they can provide references from satisfied customers. And finally, talk to friends or relatives who may have used a debt consolidation counselor. If they have been happy with the results of their debt consolidation, chances are you will be too.
You’ve Chosen A Debt Consolidation Program – Now What?
Once you've joined a
debt consolidation program, don't simply leave it
to the
credit counselor to handle everything and assume all of your debt problems will be okay. No matter what, this is still your
credit rating, your debt and your responsibility, so keep checking periodically to make sure things are going smoothly.
Consistently Check in with Your Debt Consolidation Counselor
After you begin your
debt consolidation program,
always open your bills
and check to see that the payments that were negotiated are indeed being paid on your accounts.
If they aren't, contact your
credit/debt counselor immediately to
get the problem resolved. If you see that one of your cards has been paid off, contact your
credit counselor and ask that your monthly payment either be reduced or that that amount now be applied to another
credit card in order to pay down that balance faster.
For the duration of your debt consolidation program, contact your
debt counselor at
least once every three months to discuss your progress and let him or her
know that you are proactive in handling your financial situation. This will encourage your
debt consolidation counselor to work even harder for you and provide timely debt assistance.
For more information on Debt Counseling and Debt Consolidation, visit:
