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Credit Counseling Services

This week I'm going to briefly touch on the subject of credit counselors, or more specifically, choosing the right credit counselor.  Credit counselors provide valuable services to people who are overwhelmed by debt.

Mainly, credit counselors provide two important services.  First, they look at your spending habits, make suggestions, and help you develop a budget designed to enable you to live within your means.  As is the case with any professional advice, it is valuable only if you adhere to it.  Second, they work with your creditors---particularly the credit card companies---and negotiate lower interest rates and lower monthly payments.  They are generally in a better position than you are to conduct these negotiations because they have developed relationships with the creditors and have a good reputation.

Unfortunately, there's no shortage of unscrupulous types in any field who won't mind taking advantage of those desperate for help.  Avoid credit counselors who charge unreasonably high fees or who demand cash up front before they've done anything for you.

Many credit counseling agencies are charitable organizations, or what we professionals like to call Section 501(c)(3) organizations (named for the relevant governing provision of the Internal Revenue Code), in our continuing effort to dazzle the public with Code section references whenever we're not dazzling everybody with acronyms.  Nonprofit organizations, of course, are just that---they don't make any money from you and many are able to survive on the charitable contributions they receive.  If they even charge you a fee at all, it will generally be designed only to cover their costs.

The IRS has an excellent web page that you can use to search for an organization and learn whether it is a Section 501(c)(3) organization.  If you're sophisticated enough to evaluate financial statements, you can get a free membership at Guidestar and take a look at the organization's tax returns and determine whether they're sound financially and charge reasonable fees in relation to their costs.

Furthermore, the Department of Justice has a helpful web page that lists, by state, approved credit counseling services.  This can be a further tool to help you identify the bad apples in the industry.

Hopefully your situation never becomes desperate to the point where you consider a credit counselor, but if it does I think you'll find these tips useful.