by Thom Fox, Cambridge Credit Counseling Corporation

Credit-counseling agencies like ours help people with unsecured loans by renegotiating certain aspects of their repayment agreement. We also educate consumers about the proper use of credit, the responsible management of debt, and the appropriate methods used to build savings so they can make more informed financial decisions in the future. Because only seven states currently mandate personal finance education, credit-counseling agencies have had to take on that responsibility.

A good credit-counseling agency actually educates the public on two levels. First, the agency works within its local community to educate a variety of groups about personal finance. They do this by conducting workshops and seminars about specific financial issues of interest to their audience. Second, the agency provides free one-on-one counseling and information to consumers who contact the agency directly. A reputable agency will also perform a full financial assessment to help diagnose the root cause of the consumer’s difficulty, and the counselor and consumer will work together to create effective, realistic solutions that address the situation. In some circumstances, a small percentage of consumers may benefit from the structured guidance of a debt repayment plan. These consumers would then be given the option of enrolling in the debt management program (DMP) offered by the agency.


Benefits of a DMP

• Reduced Interest Rates: Most creditors will reduce the interest rate on an account enrolled in a DMP.
• Accounts Re-Aged: If certain criteria are met, many creditors will change the status of an account from delinquent to current.
• Elimination of Late and Over-Limit Fees: Typically, a consumer’s future late and over-limit fees will be eliminated as long as they are enrolled in a DMP.

What to avoid when choosing a Credit Counseling Agency

• Quick Payment Quotes Over the Phone: Your creditors have very specific guidelines for setting up a DMP. If a company quotes you a payment without asking for all of your account information and a full disclosure of your budget, you are getting an uninformed estimate.

• Ads Promising to Reduce Your Payments by 50% or More: One benefit of joining a DMP is that many creditors will reduce your monthly payments. Not all of them will, however. Beware of promises that seem too good to be true.

• Unclear or Vague Contracts: Most DMPs require that consumers sign a service agreement or contract that describes the terms of service. These contracts should clearly explain how the service works, what the fees are, and what is required of the consumer to complete the plan successfully.
   
• “Voluntary” Contributions: There is nothing wrong with paying fees for quality service, but if a debt management company tries to tell you that all their fees are voluntary or seems vague about the actual costs of their service, be wary. Most of their fees are probably not voluntary or are hidden in their service contract.
• Plans That Sound Too Quick and Easy: There is no such thing as a five- or ten-minute program for becoming debt free. There are too many steps in the process and too much information that should be exchanged between you and your counselor. It will take a fair amount of time for a counselor to understand your situation well enough to devise a plan with you, particularly if it involves enrolling in a DMP. If you feel you’re being rushed into joining a DMP, seek another organization to help you.   

If you would like to know more about how a credit-counseling service may be able to assist you, please contact us at Cambridge Credit Counseling Corporation at 1-800-CAMBRIDGE.