Credit counseling agencies are organizations that work with people who need help managing their finances. According to the Federal Trade Commissioner, individuals who may benefit from credit counseling include those with no savings, who can't pay their bills or who are being contacted by debt collectors. Working with a credit counseling organization can help you in several ways.
Education
The primary focus of a good credit counseling agency, according to the Internal Revenue Service, is financial education. Those who utilize the services of these agencies may be in need of lessons on how to budget, how to save money and how to manage the debt they have accrued. The Federal Trade Commission states that good credit counselors offer educational materials and informative workshops, often for free. Your counselor should spend time delving into your financial situation and working with you in understanding how to improve the state of your finances. Credit counseling agencies also can provide information about buying a home, avoiding bankruptcy and dealing with a defaulted mortgage.
Debt Management Plans
A debt management plan, or DMP, may be an option for those who cannot keep up with their debt payments. With a DMP, the client pays a certain amount of money each month to the credit counseling agency. The agency then in turn contacts the companies who you own money to and sets up agreeable payment plans, often with lower interest rates and lower payments. The credit counseling agency sends payment to the companies each month. When you are on a DMP, most telephone calls from your creditors will stop, according to the National Foundation for Credit Counseling. The Federal Trade Commissioner warns that if a DMP is recommended before a counselor has spent adequate time reviewing your finances, the agency may be unscrupulous. It also suggests getting all of the details of the proposed plan, including the time it will take for you to pay all of the debts off, in writing before signing anything; contacting all of your creditors to be sure they have agreed to the payment plans; and keeping close tabs on your monthly statements to make sure that all funds are being allocated as agreed.
Help Rebuilding Credit
If you have defaulted on loans, claimed bankruptcy or lost your home, credit counseling agencies can help you to rebuild your credit. By using their services, you will be paying your monthly bills on time, which will raise your credit scores if you have previously not paid on time. According to the National Foundation for Credit Counseling, however, enrolling in a DMP can have negative effects on your credit report if you have previously paid all of your bills on time, as it indicates that there were problems paying your bills. By being proactive, you can minimize the impact on your credit.
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