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The holiday season has almost come
and gone and you may find yourself in your own reality
series: Surviving Credit Card Debt.
According to financial
experts, the airwaves are full of offers from credit counseling
agencies or debt management plans to erase your debt. Be careful.
While most of these firms are reputable, be sure to do your homework before signing
up with a credit counseling or debt management firm. Otherwise, you could find yourself paying high fees
to set up and maintain a program.
There are more than
1,000 credit and debt management organizations. Before deciding on a credit counseling agency, check
to see if it is a member of either the National Foundation
for Credit Counseling (www.nfcc.org)
or the Association of Independent Consumer Credit Counseling
Agencies (www.aiccca.org)
and if it is accredited by the Council on Accreditation. These organizations require members adhere to professional
standards and ethics in dealing with their clients.
Determine the cost. In most cases, there is generally a fee to set up a
debt management plan and a monthly fee to maintain the plan. While these fees can go up to $50-$75, overall the
prices for these services are much lower. Additionally, there are some non-profit firms that
provide debt counseling services at no or minimal cost to
their clients.
In a debt management plan, you make one payment to the credit
counseling agency during regular intervals and the agency
disburses the money to your creditors. Determine how often the agency will make payments
(weekly or monthly)
so that you can be sure the payments reach your creditors
on time. Make
sure you find out whether your first monthly
payment is considered a set-up fee or is that money going
directly to your creditors.
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Some people fear that by using a credit counseling agency
or debt management plan, their credit score will be affected. According to officials at Fair, Isaac and Company,
which developed the credit score, they do not use this against
your credit report.
However, you could have some problems
with individual creditors. Even though the credit counseling service has negotiated
a repayment plan with your creditors, the creditor may still
send in a negative report to the credit bureau because you
are only paying part of your payment, rather than fulfilling
your agreement to pay the entire amount.
Another benefit to
look for in selecting a credit counseling service is whether
they offer budgeting classes. If the agency is interested only in signing you up
for debt management, look to another agency. The agency also should offer you educational classes
to help you manage your finances.
Your community banker advises you to be leery of firms that
promise to erase your bad debt quickly and provide you with
a clean credit report. Impossible. You didn’t get into trouble overnight and it will take
some time to rebuild your credit. But, it can be done and it is worth the extra effort.
CONSUMER TIPS is provided as a public
service by the Missouri Independent Bankers Association
AND
Community Bank of the Ozarks
P.O. Box 43
Sunrise Beach, MO 65079
(573) 374-5245
1-800-927-4314
www.cbobanker.com
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