Questions to ask a credit counselor or debt settlement company.
With millions of Americans struggling with paying their credit card bills and debts, more and more people are asking for assistance. If you do decide to approach a credit counselor, or explore a debt management or settlement program, here are several questions to ask the company before signing an agreement. The more knowledge that someone has on the process will help ensure that the correct counselor is selected. This should also improve the chances to receive long term success.
Find questions below that apply to both types of companies, or what to specifically ask a credit counselor and questions to ask about debt settlement or management programs.
Questions for both types of companies
Exactly what services do you provide?
A company saying they offer "debt counseling" or "credit counseling" is very vague, and it encompass a wide variety of possible programs as well as plans. Get the specifics on what they offer and propose. However, do keep in mind that the two major categories are professionals that provide both budgeting, counseling and education services, and these are normally called credit counselors. The second common category is companies that will help negotiate a reduction or elimination of your debts and/or will actually take over making the payments for you in an escrow account. There are normally referred to as "debt counselors", “settlement” or "debt management plans".
If you proceed with the second option, those require the most time to review the company and vigilance on your part to make sure you're getting the best service for your money. As dealing with a for profit company will inherently come with more risks.
Always remember that if some person or a company promises they can easily and quickly make all your unpaid debts disappear, while at the same time somehow magically improving your credit rating, stay away from them. There never should be guarantees as part of this process. Any type of assistance programs and counseling takes hard work as well as discipline by the customer. Credit counseling, education and assistance programs are all worthy, effective services but they're not miracles. The provider should say you will need to work hard, stay focused, and be disciplined in order to be successful in reducing any debt you may have.
Can you provide references?
In addition to asking them this question, you will want to do some checking around on your own as well. Search the Internet. Contact the local Better Business Bureau. Search social network sites or blogs for feedback. If possible, track down actual references from people who have used the service or company. Maybe a friend, neighbor, or relative has used them. However, getting these actual references may be the most difficult.
If you can get any firsthand accounts of reasonable rates, good service, and successful programs, those should be given a lot of weight in making your decision. As a number of positive, independent reviews are very powerful.
What will happen to my credit rating?
A key here is them answering truthfully. You need a realistic answer. As in all honesty, if you're late with paying your credit card bills or mortgage, your credit score may already be in the process of going down. The fact is it needs to, and will, go down if you are delinquent.
If any company "guarantees" to wipe your credit clean and improve your score overnight, that should be a red flag. A company should be able to offer a commitment to help you slowly improve your credit scores, and manage your credit rating as best you can. A good counselor or debt plan organization should be able to offer you solid advice about what you can do without making unsustainable promises that your credit will magically be fixed.
How much will I need to pay?
The answer should not be complicated, and the total amount you need to pay should be reasonable. A typical red flag is if a company starts to quote you a complicated payment structure of fees, rates, and percentages. That may mean you have gone to the wrong company or counselor. You should try to get something simple, like a small setup fee, and then a recurring monthly payment. Question any fees they say are included in the program and that you will need to pay.
How is the service provided?
They should have a wide variety of options. Services should be offered by telephone, in person, and even over the Internet. Find a company that offers many options, and the one that works best for you.
Questions for credit counselors
Are all of your credit counselors certified and trained?
You should look for an independent, legitimate certification from an outside organization. Some companies certify their own workers, and if they do that, it is not good enough. Be sure to also look for professional credentials and relevant education. Or even look for government certification. For example, are the firm's counselors lawyers, Certified Financial Planners, certified public accountants or other industry experts who inspire confidence that they can meet your needs. Click here to find a listing of government approved credit non-profit counselors.
By whom are you accredited?
When dealing with credit counselors, you need to make sure the accreditation comes from an independent, legitimate, third party organization. Some ones that they should hopefully be registered with include the National Foundation for Credit Counseling and the Better Business Bureau.
Questions for debt management settlement providers
How much debt have you settled and how long have you been in the debt settlement business?
This industry is not as regulated, and some companies don’t settle much debt at all and are not as successful. In addition to that challenge, some of the newer companies have very little experience. Since it is still a fairly unregulated industry, tread cautiously. If the debt settlement company cannot provide proof of their experience and dollar amounts, you may want to pass.
Will you be paying my creditors monthly?
These companies do not make monthly payments to your creditors using their own money. If they say that they do, or even give the impression, that should raise some eyebrows.
Can I be sued?
The answer you are looking for here is yes, as you may get sued. While it is not common, the fact is that you can be sued if you delay making payments on your bills. If they say differently, question why. That may be a red flag.
When will the first settlement occur?
The first settlement of your debt should be made within the first 12 months of your start date. The process should begin quickly with a debt management or settlement program. If it is longer, be concerned.
What is happening and who is holding my money while I’m waiting for the settlement?
They need to be held at a third party escrow company in an FDIC insured trust account as the settlement process gets underway and evolves. A consumer needs to have full visibility to where their money is placed. Ensure you will get proof of this. Any different answer and you should be concerned with the status of your money.
What are the fees and charges for your debt management - settlement plan?
Most of the fees you pay should be based on their results or performance. Most companies will charge you a flat fee that is based on a percentage of your overall debt amount. Be sure this percentage is clearly communicated and can’t change over time. The fees will be collected in the beginning months of the program, and you owe the amount even if no settlements are completed yet. Ensure some of the fees that you are responsible for paying are dependent on the program being successful.
What happens to my credit ratings?
The debt settlement or management company should say that there will be a negative impact on your credit report, as that is what will happen. This should be transparent to you.