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Debt Consolidation - Tips For Finding a Reputable Debt Consolidation Company

Last Updated: May 15, 2011

Debt consolidation can be describe as taking out a loan (at a lower interest rate) to pay off many other loans which may be at much higher interest rates. The most common use for debt consolidation is for the reduction of high interest credit card debt. Securing a loan at a lower interest rate will allow the debtor to pay less in interest thus helping him/her pay off this large debt quicker.

If you are finding yourself underwater in credit card debt and you are thinking of reaching out to a debt consolidation company, we have put together some helpful hints you should follow when looking for a debt consolidation company.

• Read the New Laws regarding debt relief, settlement and negotiation companies.


• Locate a Local Consumer Credit Counseling Office. Of all the debt consolidation companies, in my opinion, they are the least harmful to you and your credit. Here is a good link to search for the one nearest you, by zip code. Local companies are also a good idea because the local authorities have jurisdiction over them. They can do little if the company is out of state.


• Check Out the Company with the BBB. You can check out any company you are thinking of signing up with immediately online. In addition, you should also call your state's consumer protection agency/state attorney general's office to see if there have been complaints.


• Evaluate Advertisements. Just because a credit counselor has a big advertising budget does not necessarily mean it is the best! Also, you would be wise to ignore telephone calls or e-mails that arrive "out of the blue" from credit counselors offering their services. Good credit counselors often rely on past clients for referrals; they do not need to solicit business through constant television advertising, infomercials, telemarketing or spam e-mails.


• Are They a Member of a Reputable Debt Consolidation Organization? Ask if the firm is a member of the National Foundation for Credit Counseling (NFCC) at nfcc.org or the Association of Independent Consumer Credit Counseling Agencies at http://www.aiccca.org and double-check that information at the respective Web site. Agencies that are members of these organizations must adhere to strict standards of professionalism and accreditation and use only certified credit counselors.


• What are the Qualifications of Their Counselors? Ask if the counselors are certified and by whom? Try to select an agency whose counselors are certified by an outside organization, preferably NFCC. One way to test a counselor's knowledge: debt consolidation monthly payment fees are subject to state law, and the agency representative should be able to tell you the specific regulations for your state of residence.


• How are the Counselors Paid? Steer clear of organizations that pay employees a commission; that might well influence the number or nature of services they decide you need.


• Are Their Services Personalized? A cookie-cutter approach most likely will not address your financial situation. Find out if the counselor will devise a plan tailored to fit your personal circumstances. Also, think beyond your immediate credit/debt problems and find out if the agency will offer you advice on avoiding problems in the future.


• What About Privacy and Security? What assurances do you have that the agency will keep information about you confidential? Does the agency have a privacy policy and are you comfortable with its terms? If not, select another agency. Security practices are also of importance. How does the credit counselor protect the security of client information?


• Make Sure They Provide Their Terms of Service in Writing. As of September 27, 2010, debt settlement firms are required to give you a good faith estimate regarding all fees, the time it will take to finsih their program and how much money they can save you. Only do business with agencies that offer formal written agreements or contracts. Carefully read through the terms of agreement or contract. It should describe in straight-forward fashion the services to be performed, the counselor's name, business name, address and contact information.


• What are Their Fees? Those these are required to be presented to you up front, fet a clear presentation of the fees you will be charged. Also note, the new Sept 2010 regulations make it illegal for a firm to collect any money until some actual work is performed. If there are fees (set-up fee, monthly service charges), the agency should explain what they are based upon. In general, you should not expect to pay more than $75 in set-up fees or make a monthly payment that exceeds $40. The agency should also be willing to advise you how your funds will be protected before payment to your creditors.


• How are Payments Distributed to Your Creditors? Your creditors should always be credited with one hundred percent (100%) of the amount you pay through a debt consolidation agency.


• How is the Agency Funded? Most credit counseling agencies are partially funded through voluntary contributions from creditors who participate in Debt Management Plans. (Creditors have a business interest in receiving their payments, so most of them are willing to help support participating credit counseling agencies.) Go elsewhere for assistance if the credit counseling agency refuses to discuss its funding sources. If the agency claims to be tax-exempt or not-for-profit, double-check with your state charity official (for contact information, visit the Web site of the National Association of State Charity Officials at http://www.nasconet.org). Some credit counseling organizations using questionable practices have sought tax-exempt status in order to circumvent consumer protection laws. It is illegal for a company to represent itself as non-profit when that is not the case.


• Do They Offer Budget and Credit Education? Reputable organizations are willing to help you manage your finances through counseling and education. Ask if the agency offers workshops or educational materials. Are they available for free? Are they accessible online or can the materials be mailed to you? If the agency insists that a debt management plan is the only option for clients, look elsewhere.


• Where is the Debt Consolidation Firm Located? Not all states require licensing for debt consolidation agencies. The most notable examples are the states of Maryland and Florida. If the proposed company is based there, I would exercise extra caution (in other words, run!). In addition, some states have started licensing credit counselors. If you know your proposed counselor's name, another question to ask your state attorney general is whether or not he or she is licensed.


• Look Before You Leap! It is crucial to think things out carefully and do your homework before signing on the dotted line. This contract will affect you, your credit and therefore your lifestyle for years to come. A few days will not make any difference in the overall scheme of things if you are really behind in your bills or if creditors are hounding you. You can tell any callers that you are going to join a consumer credit counseling service and this should quiet them.

You need to consider how you got into this mess in the first place: by not being able to exercise control over your finances, right? If you only come out of these programs with your debt gone, you are only treating the symptom without addressing the root problem. You should look for programs which include "financial fitness" programs and budgeting plans as one of the primary focuses.

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