Credit counseling or debt management? What will work best for you?

If you are struggling with your finances and would like some assistance, know your options.

When individuals are struggling with their finances and would like assistance, they often are not sure where to turn and who to trust. Here are some basic definitions of two popular options available: credit counseling and debt management.

When credit counseling could be considered: If a person is having challenges following a budget, cannot work out a repayment plan with your creditors or cannot keep track of mounting bills, a credit-counseling agency might be for you.

Many credit counseling agencies are non-profit and work with individuals to solve their unique financial problems. Reputable credit counseling agencies often offer free education materials and workshops.  These agencies will assist you with managing your money and debts, as well as assist in creating a working budget.

Credit counselors are certified and trained in the areas of consumer debt, money and debt management and budgeting. The counselors will review and discuss your entire financial situations, then will assist to develop a personalized action plan to resolve problem issues. An initial session with a credit counselor will be approximately one hour with an offer for a follow-up session if needed.

When a Debt Management Plan could be considered: If financial problems stem from too much debt or a person’s inability to repay debts, a credit-counseling agency may recommend enrolling into a debt management plan (DMP). A DMP alone is not credit counseling and is not for everyone. It is highly recommended that you should only sign up for one of these plans after a certified credit counselor has thoroughly reviewed your financial situation.

Be sure to know an estimated time it will take to complete the plan.  There may also be an agreement not to apply for or use any addition credit while participating in the plan.

Be aware of scams in the areas of credit counseling and debt management.  The Federal Trade Commission (FTC) has great information on how to locate reputable agencies in this area.  Here are some additional tips from the FTC:

  • Interview several credit counseling agencies before signing a contract.
  • Check with the state Attorney General and Better Business Bureau to find if any complaints have been filed on an agency.
  • A reputable agency will send free information about themselves and their services without requiring details of personal financial situations.
  • Ask questions about services, fees and repayment plans.

For addition information on this topic, go to Federal Trade Commission and Consumer Financial Protection Bureau

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