What is Credit Counseling?

“Credit counseling can be a financial lifesaver when it’s done right." Consumer Reports

Credit Counseling is about much more than simply debt consolidation - It's about financial education, making informed financial decisions and planning for your future. It's not just about succeeding with money, it's about succeeding in life!

Despite what the average American believes, when you find yourself in financial trouble, bankruptcy is not always the answer. If you are behind on your bills and swimming in an endless sea of debt, there is hope. Credit counseling could be your solution. We help organize the unorganized and empower the powerless. We serve to help consumers overcome the isolation they may feel when dealing with debt and creditors.

When done right, credit counseling can be a useful tool for consumers in financial distress or to help families plan a budget. Credit Counseling takes a comprehensive approach to treating a consumer’s financial instability. Through tools such as debt management plans, referrals to other social agencies (to address other problems associated with the symptoms of the financial stress), and adequate financial education and counseling, the goal is to assist debt-ridden consumers back to financial health.

Creditors prefer to work with credit counselors. They know that if you’re willing to see a professional credit counselor, you must be serious about putting your finances in order. Depending on your situation, in some cases, credit counselors can –

• Rebuild your reputation with your creditors
• Stop the collection calls and legal notices
• Help you become debt-free much faster
• Reduce the size of the debt you owe
• Reduce your monthly payments
• Reduce your interest rates
• Waive late fees
• Re-age your account(s) so they are not in default
• Prevent bankruptcy
• Consolidate all your bills into one payment
• Offer motivation, education, encouragement
• Provide someone you can talk to when you have a question or concern

Our Certified Credit Counselors assist people dealing with debt, job loss, housing, divorce, identity theft, loss of a loved one, single parenting, bankruptcy, and more. We can help you get out of debt, but we cannot totally erase any past damage to your credit rating. Credit counseling works because it benefits all parties involved: The consumer is able to get back on track and allows their credit rating to improve over time and the creditor gets paid what is owed to them.

For the majority of our clients, the budget and personalized plan provide the guidance necessary to handle their financial situation themselves, without any further assistance. Some clients (on average one in four) find enrolling in a Debt Management Plan the best solution to meet their financial goals. All information shared with a counselor will remain strictly confidential, as defined in our privacy policy.

AAA Fair Credit Foundation (FCF) is a registered 501 (c)(3) nationally recognized non-profit organization offering confidential and professional credit counseling, debt management plans and financial education programs to consumers. FCF is accredited by BSI Americas and has completed the ISO 9001:2000 certification process. Since 1996, FCF has assisted over 70,000 individuals and families with their financial situation.

FCF is dedicated to providing services that help financially distressed families and individuals effectively manage their personal finances. Our certified counselors and staff work with you to help resolve your financial difficulties. Can we help you get completely out of debt? The answer is simple: "Yes we can." The real question is, "Are you ready to let us help you become debt free?"

Am I the only one with money problems? Heavens no. The average American family carried about $9,300 in credit-card debt in 2005. Debt is the one issue that affects all of us. It is very common for people to have trouble paying their bills on time. Some received an unexpected expense and didn’t have the money to pay their bills on time. Others became unemployed, ill, divorced, or had some emergency that left them without the money to make their payments. A few lived beyond their means and the burden became too heavy for them to carry any longer. Don’t feel embarrassed or ashamed about falling behind on your bills. Everybody falls down at some point in their life. What matters is how you handle the fall and whether you take control of the situation or pretend it doesn't exist.

What exactly is Credit Counseling? Credit counseling is intervention in the form of personal and confidential counseling and the direct negotiation with the client’s creditors in an attempt to waive penalties, reduce or lower interest, and create a debt repayment plan that is mutually consented by the debtor and creditor. Credit counseling does not negotiate the principle amount owed to creditors. Instead, credit counseling is designed as a moral and ethical method to manage a situation that has become unmanageable on the part of the consumer. Credit Counselors have performed miracles for lots of people with serious debt problems. They’ve been able to stop the bill collectors, stop the demand notices, hold off legal suits, and keep their clients from sliding into bankruptcy.

Your counseling session will begin with a review of your current situation. You will be asked for information pertaining to your income and your expenses. Next, our counselor will review your financial goals. As part of the process, our counselor will provide advice on managing money, using credit wisely and building a savings plan. With this information, our counselor will work with you to develop a budget and a personalized plan to meet your financial goals. A counseling session should usually last about one hour and it should be clear to you that the intention is to establish the best way to resolve your credit problems.

DMP’s are creditor-approved and administered through the non-profit organization. Creditors may or may not accept the proposed payment terms. In most cases, creditors want to receive their money and will accept the proposal. Your creditors will close your account and charging privileges are suspended. On a set day each month, you make a single payment to AAAFCF as stipulated in your agreement and payments are then be disbursed to your creditors.

Who needs Credit Counseling? Credit counseling may not be the right choice for everyone. It is not designed to reduce your monthly expenses so you have more money to go out and buy more stuff. A typical candidate for credit counseling is experiencing one or more of the following: late payments, past due bills, inability to make minimum monthly payments, borrowing from one credit card to pay another, using credit to purchase items such as food and gas, a damaged credit report, creditors calling or sending collection notices, and an overall feeling of anxiety and stress.

Are there consequences to participating in credit counseling? If you are participating in a DMP, some creditors may elect to place a statement on your credit report indicating you are enrolled in a debt management program. This notation must be removed once your obligation to your creditor is met. Credit counseling organizations do not report anything whatsoever to the credit bureaus on your behalf.

There is some confusion and disagreement in the industry as to how credit counseling may impact your ability to qualify for credit. Fair Isaac and Company (FICO) has provided some helpful information about Understanding Your Credit Score. The current FICO formula ignores any reference to credit counseling that may be in your file. That’s been true for the last three years, after researchers at Fair, Isaac, the company that created the FICO scoring system, noticed that people receiving credit counseling services did not default on their debts any more often than anyone else. However, it may be more difficult to be approved for a new loan while enrolled in a DMP. Also, it is important to choose a credit counseling company with good credentials because it is possible incur additional penalties from your creditors if the credit counseling company does not meet their obligations in your DMP agreement.

Lenders also consider factors other than credit scores in making their decisions. The factors they look at can vary widely. Most want to know your income, for example. Some want to know how much savings you have or whether you’re a homeowner. Some will find credit counseling disturbing, while others see it as a good sign. The mortgage lenders who don’t like credit counseling generally treat its enrollees the same as if they had filed for Chapter 13 bankruptcy. Chapter 13 is the kind of bankruptcy that requires a repayment plan and is looked at somewhat more favorably than Chapter 7, which allows you to erase many of your debts. You might still be able to qualify for a loan from one of these lenders, although your interest rates will almost certainly be higher than if you had perfect credit.

Credit Counseling won’t improve your credit score immediately, but if you can begin to manage your credit and make consistent monthly payments, your credit score will improve with time. It’s important to know that meeting with or speaking to a credit counselor does not damage your score or lower your credit score.

Federal Trade Commission's Important Questions to Ask When Selecting a Credit Counseling Agency? There are literally hundreds of companies in the credit counseling industry, both private businesses and nonprofit entities. FCF advises consumers to exercise caution when seeking debt relief. In addition to checking on a CCA’s credibility and rating with the Better Business Bureau, FCF advises consumers to follow these steps when examining organizations before entrusting them with their financial situation:

• Shop around. Interview two or three agencies. Don't fall for advertising; ask for referrals.
• Is the agency accredited by a reputable third-party organization? If yes, by who? (ISO 9001:2000 & COA are the only two approved by most major creditors and some States)
• Does the agency maintain an independent board of directors, the majority of which cannot be employees, or related to other board members or employees of the organization? (The agency should enforce a conflict of interest policy for employees and governing board members).
• Don't rely on an agency's nonprofit status or affiliation with a particular trade group. Nearly all agencies are nonprofit. An agency can lose its tax-exempt status and still be nonprofit.(Most creditors will only offer creditor concessions to the consumer if they are working with an IRS registered 501(c)(3) nonprofit organization).
• Does the agency employ certified counselors which have been properly trained and certified through an established third party certification process?
• Are they affiliated with a national trade association to help assure they maintain quality standards and good customer service? (The three main national trade association organizations are the American Association of Debt Management Organizations (www.aadmo.org), the Association of Independent Credit Counseling Agencies (www.aiccca.org), and the National Foundation for Credit Counseling (www.nfcc.org).
• Have other consumers been satisfied with the service that they received?
• Ask if the agency looks at all unsecured debt, not just credit cards.
• Does the agency maintain all applicable licensing, registration, bonding and statutory requirements in states where business is conducted? (Not all states have regulations in place for the credit counseling industry).
• Are there adequate insurance policies in place to assure protection of client funds? (The agency should carry adequate D&O, E&O and employee dishonesty insurance with appropriate limits).
• Are clients fully credited for all and full payments to creditors? (Some agencies will deduct their fees immediately resulting in the creditor not receiving the full payment amount. This practice causes further late payments to the client).
• Does the agency ensure that personal information on individual clients is kept confidential and secure unless permission to release information has been obtained?
• What fees does the agency charge and are they disclosed upfront? (Some states have fee structure criteria in place for CCA’s who administer debt management programs).
• Will the agency work with all creditors, regardless of whether they are financially supporting the organization through voluntary contributions?
• Are Counselors compensated based on the outcome of the counseling process? (Counselors should not receive a commission or financial incentives of any kind for enrolling a client on a DMP or financial education program).
• Does the agency provide additional services such as budgeting, counseling and financial education in addition to debt management services? If the client chooses to enroll in a debt management plan, ongoing counseling sessions should be conducted.
• Are the financial books and records of all client deposit accounts audited annually? Is the audit conducted by an independent certified public accounting firm?
• The agency shall exercise diligence in their fiduciary capacity as custodians of client funds entrusted to them. Client funds will be kept separated and segregated from operating account funds. Client funds should be deposited in a federally insured financial institution. Does the agency carry adequate insurance or bonding on all employees with access to agency or client funds, with coverage based on the level of funds handled?
• Debt Management Plans should be established only when they are appropriate, and advantageous to the client. No client should be refused a DMP for minimum balances owed to creditors and no creditor should be excluded from a DMP unless it is beneficial to the client.
• Prior to the receipt of the client's first deposit when enrolling in a DMP, the agency should provide each client with a reliable estimate of the length of time it will take to complete the plan. This should be provided in writing and identify all creditors included in the plan, the total debt owed and the proposed payment to each creditor, and the anticipated number of months to liquidate the debt. Client funds received for a DMP should be disbursed to the creditors no later than 15 days from receipt of valid funds, or by scheduled disbursement date, whichever is greater.

Our Credit Counselors are certified to deliver face-to-face, telephone and internet counseling. Call 1-800-351-4195 for immediate assistance.