Five myths about credit counseling
Recent poll results released by the National Foundation for Credit Counseling confirmed what we have seen to be true for a while now: Misconceptions regarding credit counseling agencies are running rampant.
To be fair, it's not too surprising given the number of “credit repair” and “debt relief” companies (I use the term “company” loosely) in operation today. Unfortunately these businesses cast a dark shadow on the entire industry — including the nonprofit agencies who are trying to reach people in need of legitimate help.
So how can you differentiate the legitimate agencies from the scams? A good place to start is by checking the agency’s accreditation.
“NFCC Member Agencies are required to be accredited by an independent third party, and all counselors must become certified,” said Gail Cunningham, spokesperson for the NFCC. “Additionally, members must adhere to the NFCC’s stringent Member Quality Standards, thus setting members apart from others in the sector.”
Mythbusters: Top five credit counseling misconceptions
- It’s too difficult to find legitimate help.
It is smart to be cautious, particularly when dealing with financial matters, but it is not smart to let confusion be an impediment to getting assistance. To find legitimate help, consumers should look for an agency associated with a membership organization such as the NFCC, then check with the Better Business Bureau and their state Attorney General’s office, looking for unresolved complaints against any agency they are considering.
- Credit counseling is expensive.
Counseling through an NFCC Member Agency is either free or low cost. One of the NFCC’s Member Quality Standards is that no service can be denied based on an inability to pay. Therefore, in cases of true hardship, the fee will be waived.
- Credit counseling will hurt my credit report and credit score.
NFCC Member Agencies do not report to the credit bureaus. Actually, many clients’ credit scores improve after credit counseling or by utilizing a Debt Management Program (DMP), as payments become consistent and debt decreases. As an example, the NFCC’s 2012 Clients of the Year recently paid off their house and bought their first new car.
- Credit counselors only offer advice, not real solutions.
The goal of the counselor is to provide both short-term and long-term solutions for consumers. Each person is provided with a written action plan, which provides concrete steps that address immediate concerns and lay the groundwork for a financially stable tomorrow.
The Debt Management Plan (or DMP) is an example of one solution that may be offered. When utilizing this tool, the counselor negotiates with the creditor for a lower monthly payment, a lower interest rate, and late fees and over-limit fees stopped or lowered. Once in place, the DMP provides immediate relief for those struggling to meet debt obligations.
- Debt settlement or bankruptcy are better, easier options.
Debt settlement and bankruptcy are both serious financial decisions, and typically have negative consequences for a person’s credit report and score. They may be the right answer for some situations, but should only be considered after having first reviewed all other resolution options.
If you are experiencing the initial twinges of financial struggle, now is the perfect time to explore your options. In fact, the longer you wait the fewer options you’ll have. So take a few minutes to chat with one of our certified counselors — you’ll be glad you did!
Money Management International (MMI) is a member of the National Foundation for Credit Counseling (NFCC). The NFCC, founded in 1951, is the nation’s largest and longest serving national nonprofit credit counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services. NFCC Members annually help millions of consumers through more than 700 community-based offices nationwide.