Is 2015 the Year to Tackle Your Debt? 10 Tips to find Free or Low-Cost Help
Stacey Johnson/MoneyTalks News

2 January 2015

Looking for help with debt? You are not alone. Nearly a fifth of Americans with debt told pollsters recently that they expect to die in debt.

Although most Americans don’t carry a balance on credit cards, about 38 percent of us do. Those carrying a balance in 2013 owed a median (half owed more, half less) of $2,300, according to the Federal Reserve’s Survey of Consumer Finances.

This year will be different

Perhaps you’ve decided this is the year when you are going to turn your debt picture around. In the video below, Money Talks News founder Stacy Johnson explains that, to make good on that resolution, you may benefit from expert help. After you’ve watched it, scroll down to learn more.

Fortunately, there are many excellent, trustworthy credit counseling agencies able to help. Unfortunately, it’s too easy to stumble into the hands of a bad “adviser.” The so-called debt settlement industry is poorly regulated and rife with problems.

Beware bad actors

In a column in the Delaware County (Pa.) News Network, Markita Morris-Louis, an attorney for a Philadelphia-based nonprofit that helps consumers with debt and financial problems, writes:

Lured by promises to reduce their debt loads by 50 percent, debt-burdened consumers often turn to debt settlement companies to help them lower the balances they owe to creditors.

Unfortunately, customers of debt settlement companies often achieve little relief, and far from becoming debt-free, many end up in worse financial condition.

The federal Consumer Financial Protection Bureau explains how to tell the difference between a credit counselor and a debt settlement company.

Find trustworthy help

To be safe, get financial counseling from a nonprofit agency. Here’s where to find one:

The National Foundation for Credit Counseling is a national network of agencies that are vetted and accredited by the Council on Accreditation. The foundation’s agency locator shows local, regional or national organizations operating near you that provide credit, debt and budget counseling in person, online or by phone. You can get started by submitting information online.

The Association of Independent Consumer Credit Counseling Agencies represents independent nonprofit agencies providing credit counseling and debt help to consumers. The agencies are accredited by the Council on Accreditation. Find a member agency here.

Other sources of help. The Federal Trade Commission says:

Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

What to expect

Trustworthy credit counseling agencies offer help with reducing debt and establishing and maintaining good credit. They can help you set up a budget. With their debt management plans, you may be able to have fees waived and interest rates and monthly payments reduced. But they can’t reduce the balance (the total amount) of debt you owe.

ClearPoint Credit Counseling Solutions, a NFCC network member, explains a debt management plan:

It’s a systematic, step-by-step, personalized plan for paying off 100 percent of your debt. Participants make a single monthly payment to a consumer credit counseling service such as ClearPoint, and the agency distributes the funds to their creditors.

Expect to take three to five years to pay off your debts.

Be wary

Credit counselors can negotiate with your creditors to reduce your payments by lowering your interest rate or spreading payments over a longer time. But be wary of companies promising to reduce the amount of debt you owe. The CFPB says to distrust debt settlement companies that:

    … typically offer to pay off your debts with lump sum payments that are less than the full amounts you owe. For example, for every $100 of a loan that a creditor agrees to forgive, the debt settlement company will charge you some portion in fees.

If you sign up for a debt management plan, make sure it includes all of your debts, not just some. And be certain that you’ll be able to receive regular reports on your accounts. The National Foundation for Credit Counseling explains in detail how to assess debt management plans and credit counselors.

When shopping for help managing your debts, here’s what to look for:

1. Free or low-cost counseling

Many nonprofit credit counseling services provide free advice about credit, debt and budgeting.

And when it comes to getting help with a debt management plan, USA.Gov says there’s no reason for an agency to charge consumers high fees: “The cost of setting up this debt management plan is paid by the creditor, not you.”

For example, for a debt management plan, GreenPath Financial Wellness, an NFCC member, charges a one-time setup fee of zero to $50 and monthly fees averaging $36.

2. Straight talk about fees

Don’t trust a company that gives you the runaround when you inquire about the cost of its services.

3. Free information

You should be able to learn all the details you need about an agency and its debt management plans for free. Don’t surrender your personal details to get information about a company or its fees.

4. Free help for serious hardships

Agencies should waive fees if you have a serious financial hardship. “If an organization won’t help you because you can’t afford to pay, go somewhere else for help,” advises USA.gov.

5. A variety of services

Stay away from businesses that only offer debt services, and avoid companies offering “debt reduction” plans. Trustworthy agencies offer a variety of types of help, including:

  •     Budget counseling, to help with managing money.
  •     Credit and debt counseling, to explain and help improve your credit score, dispute credit report errors, and analyze and prioritize debt payments.
  •     Debt management plans, in which you make a single payment to the agency, which pays your creditors and helps you get debts under control and paid off.
  •     Nonprofits also may offer bankruptcy help, student loan counseling, housing counseling, and counseling on getting a mortgage or reverse mortgage.

6. Education

Trustworthy nonprofits typically offer free public classes and workshops on financial subjects. “The absence of any true education offered to the general public is a red flag,” says the NFCC.

7. Professionalism

Back away if you’re feeling pressure or hear unrealistic promises. Be suspicious of “counselors” who push products, come on like salespeople or offer a one-size-fits-all solution.

8. A thorough interview

An agency should take an hour or more to get the details of your financial picture, including income and debts. Be prepared to bring copies of bills and credit card and bank statements. Some clients bring along bags of bills and statements they’ve been afraid to open.

9. No minimum debt size

You should be able to get help whether your debts are large or small. If a company says it requires a minimum amount of debt to help you, you’re in the wrong place.

10. No black marks

Check out counseling agencies you are considering:

  •     Learn if your state attorney general has received complaints about an agency. Find your state AG’s contact information by clicking your state on the map at the bottom of this page.
  •     Locate additional consumer protection resources in your state here, at USA.gov.