Are All Credit Counseling Agencies the Same?
The fees may be the same, but the services can differ greatly.
Part of the challenge in finding debt relief stems from the range of options available; with so many directions to go to get out of debt it can be hard to know which one to choose. There can also be some confusion about getting similar services from different companies. For example, is there a difference between a debt management program (DMP) administered through one agency versus another?
The information can help you understand how credit counseling agencies are the same and how they can differ. If you have questions or would like to setup a confidential debt evaluation with a certified credit counselor, call us. You can also complete an online application. The consultation is free with no obligation, so you can get expert advice without any pressure.
Debt management programs are largely similar
One of the main functions of a credit counseling agency is to administer debt management programs for eligible borrowers. The agency can help the borrower enroll if it’s determined to be the best option for relief during the initial free consultation. Once the plan is set up the agency accepts the client’s monthly payment. Then they distribute funds to the creditors on the client’s behalf.
This role in managing the debt management program is the same regardless of which agency you choose. In fact, the way that these programs are set up is regulated by federal and state law. Even the fees applied to the program are set by state regulators.
So what you pay for the program at one agency should be the same at another. Since these credit counseling agencies are nonprofit, they’re not competing to “beat” each other by offering lower prices. They exist to help consumers eliminate debt and regain stability.
In some cases, fee structures can be different if a particular agency makes a decision to reduce fees or waive them completely. For example, Consolidated Credit offers reduced debt management program fees for military Service Members who are deployed on Active Duty. Our agency also waives fees for people who live in a declared disaster area following a major event. During Hurricane Sandy in 2012 fee structures were waived for anyone in the Northeast in a FEMA-declared disaster area.
Program payments should also be largely consistent
A debt management program is structured to fit your budget. During the initial consultation, you and the counselor determine what you can comfortably afford to pay without stressing your budget. However, what you don’t want to do is lower the payment too much! The longer it takes to pay off your debt, the more you pay in total interest charges.
Enrollment in a debt management program is about striking that balance between low monthly payments and a reasonable program completion date. As a result, the monthly payment structure from one credit counseling agency to the next should also be the same.
Where credit counseling agencies differ
While the DMP, itself, should be largely the same in its structure that does not mean all agencies are equal. Credit counseling agencies can differ greatly in two key areas.
A debt management program is only effective if your creditors sign off on it. Creditors must approve the inclusion of each debt into the program. If the creditor doesn’t want their debt included in the program you can still enroll without that particular debt. You want all of your creditors to approve the program, so you can eliminate all of your debt in one fell swoop.
This is where the reputation of the agency matters. Agencies with established reputations of helping creditors out of debt tend to be more effective. Most major creditors sign off readily when an agency they know calls to negotiate on your behalf. They have confidence that by working with that agency, you will pay back what you owe.
Even smaller lenders such as collection agencies and payday loan servicers may be willing to accept reduced payments if you’re working with an agency they know. With that in mind, the reputation and track record of the agency you work with matters. A recognized agency with a proven record of helping people pay off debt may have more success negotiating.
The other way credit counseling agencies differ is in the quality and volume of resources they provide. Credit counseling services provide 2-part assistance. The first part is administering the debt management program so you can eliminate the debt you have. But the other part comes in helping a client rehabilitate to develop better financial habits moving forward.
Credit counseling agencies provide a range of free resources that help their clients learn. They teach you how to budget effectively, save for emergencies and live without a reliance on credit. Different agencies have different resources. You should choose an agency that’s focused on helping to rehabilitate your financial life. More resources means you’re better equipped to live debt free successfully in the future.
Beware of scams!
As you consider which agency you want to work with, make sure to thoroughly vet a credit counseling agency to ensure they’re legitimate. Although most agencies are legitimate organizations with certified credit counselors, scams certainly exist. These agencies often violate regulations about fee structures and can take your money and run.
They may also leave you in a lurch with your creditors. You may think you’re paying diligently, but the agency may not distribute the money correctly to your creditors. The company disappears, leaving you to face debts that are in default due to nonpayment on your own.
The Better Business Bureau evaluates and rates credit counseling agencies. Make sure to check company ratings. You can also research customer feedback through independent third-party review websites.