A debt consolidation program may be a good idea for people who find that they cannot keep up with the monthly payments on the debt they have, and is sometimes viewed as an alternative to bankruptcy. Debt consolidation is also called credit counseling or debt management, but all reputable debt consolidation services will operate fairly and transparently, and not just replace your debt with debt. Protect your money and credit: find a reputable company to work with and abide by the terms of the debt management plan you and the agency agree upon.
Finding a Reputable Agency
1
Make sure the agency is a nonprofit. A lot of things can be meant by “debt consolidation,” and there are a lot of shady operators who will claim to help you out of debt or “repair your credit.” The first step in making sure that the agency you’re dealing with it legitimate is by verifying their nonprofit status.
2. Check their rating with the Better Business Bureau. A reputable agency will be highly rated and accredited by the Better Business Bureau (BBB). The BBB develops standards for ethical business practices and maintains ratings based on how well a business abides by those standards. In addition, the BBB website serves as a repository for consumer complaints along with the resolutions to those complaints.[4][5]- Nonprofit agencies won’t be lending agencies. Agencies offering “debt consolidation loans,” are probably not what you’re looking for. A debt consolidation loan is just one lender buying your debt from your creditors for less than its face value, at which point you make one payment to the new lender.[1]
- Debt settlement programs are usually poor options as well. They work like this: the debt settlement company takes the money you would be paying your creditors and puts it in an escrow account. They hold it in the escrow account for as long as it takes for the creditor to agree to settle for less than the face value of the debt. Your accounts go delinquent in the meantime.[2]
- Debt consolidation through debt management is the best option for most people. The debt management company notifies your creditors and gets debt concessions on your behalf, like waiving late fees. You make one monthly payment to them, and they distribute it to all of your creditors.[3]
- See how the agency you’re considering is rated by going tohttps://www.bbb.org/search/
- See if the agency you’re considering is listed athttp://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm. Once you’ve narrowed your search by state, HUD will also give a brief listing of each credit counseling agency’s services and contact information.
- 4See if they are accredited by any trade associations. There are two main trade associations in the world of credit counseling, the National Foundation for Credit Counseling (NFCC), and the Financial Counseling Association of America (FCAA). The NFCC and the FCAA work to develop standards for best practices across the credit counseling industry. In order to achieve accreditation, an agency must abide by those best practices.[6][7]
- The NFCC, founded in 1951, maintains a directory of members athttps://www.nfcc.org/locator/.
- The FCAA is a smaller and newer agency, in existence since 1993. You can examine a directory at http://fcaa.org/our-members.
5Inquire about their fees. Reputable credit counseling and debt management agencies won’t have exorbitant fees. Counseling itself is usually free. Debt management might come with a set-up fee, and there’s typically a small ($0-$75) monthly fee to use the service.[8]
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