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Choosing a Debt Consolidation Counselor

By David Oliver

Debt consolidation is often the best solution for those who are feeling overwhelmed by monthly payments and are afraid they are about to fall behind on their payments or who are only making the minimum payments on their credit cards. It combines their unsecured debt into one easy monthly payment, reduces interest and penalties, and can help them pay off their outstanding debts sooner.

With thousands of debt consolidation companies out there, however, how do you know which debt consolidation counselor is right for you? It can be very confusing, and some companies will take advantage of your fears and simply create more problems for you while they pocket the money they earn managing your accounts.

A good credit counselor's goal is to do several things:

• Reduce the interest on your outstanding debts
• Reduce or eliminate late fees or penalties
• Negotiate payments that will reduce your balances quickly within your budget
• Offer credit counseling so that you won't make the same mistakes again
• Prevent you from going further into debt by limiting your access to credit

Some things to consider when you shop for a Debt Consolidation Counselor:

• Account Flexibility. Each of your accounts should be addressed individually. While the goal of a credit counselor is to negotiate a lower interest rate for you, this may not always be necessary. If you have a card that already has low interest, it shouldn't be in the program because it won't help you, and you will be paying a fee on it for them to process it.
   
  You should also be able to keep at least one card out of the program for travel, business and emergency purposes. If they insist you have to include all credit cards, steer clear.
   
• Good customer service. Get a quote, and then follow up with some questions. If they assign a counselor specifically to your account who can answer your questions and explain the procedure clearly to you, then they will probably continue to provide this type of service to you as time goes on.
   
• Beware of "multi-purpose" offers. If they offer a vague "analysis" of your financial situation for a fee, be wary of the company. This may simply be their way of getting your information so that they can then do a more detailed sales pitch and making some easy money while they are at it. A quote should never cost you anything.
   
• Concrete, individual timelines. Your credit counselor should be able to tell you how long it will take to pay off each and every credit card. If the only answer you can get is, "two to four years," ask for a break-out for each individual account. If they can't provide this, they are hiding something. The payoff time and amount is different for every account, and you have the right to have that information.
   
• Honesty. Some offer "good payer" programs or "cash rewards." This isn't free money - it is a program where creditors, in compensation to consolidation companies for making sure you are paying your debts, occasionally refund small amounts to the counseling company. Usually, the counseling company will split this (often 50/50) with the client. It's a nice incentive program that benefits everyone and can give you a bit of extra cash every six months or so.
   
  This is great - if they tell you this up front! If they disguise this as a reward or bonus as though they're giving you a prize, they are being dishonest. Any time they offer you money, ask where exactly it is coming from and for what. If they try to make it seem better or different than what it actually is, they are probably dressing up the facts elsewhere as well.
   
• Evaluate their quotes. Fees should generally be no more than approximately 10% of what you will be paying monthly for their monthly fees in order to handle your account. If it goes much higher than this, be cautious, and ask for a breakdown of how the money is used. Make sure there are no "start-up fees" or other hidden costs that will cost you later.
   
• Check References. This is simple - call the Better Business Bureau and ask about the company. When you begin talking to the company, ask if they can provide references from satisfied customers. And finally, talk to friends or relatives you know who may have used a debt consolidation counselor. If they have been happy with the results, chances are you will be too.

Follow Up After the Fact

Once you've joined a program, don't simply leave it to the credit counselor to handle everything and assume it is all going to be okay. No matter what, this is still your credit rating, your debt and your responsibility, so keep checking periodically to make sure things are going smoothly.

Always open your bills and check to see that the payments that were negotiated are indeed being paid on your accounts. If they aren't, contact your credit counselor immediately to get the problem resolved. If you see that one of your cards has been paid off, contact your counselor and ask that your monthly payment either by reduced, or that that amount now be applied to another card in order to pay down that balance faster.

Contact your credit counselor at least once every three months to discuss your progress and let him or her know that you are pro-active in handling your financial situation. This will encourage them to do their best for you.

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I want to start by asking you a question:

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