What are Credit Counseling Agencies?

Credit counseling agencies may be able to help you if you are having trouble paying your debts. Credit counseling agencies also can be an alternative to filing bankruptcy proceedings, or, in some cases, are a required step to filing bankruptcy proceedings. These are generally non-profit organizations whose goal is to provide you with the tools necessary to managing and paying off your debt. Getting you out of debt includes not only a plan to repay your debts, but also education and counseling to prevent you from getting into debt again in the future. 
Some organizations that call themselves credit counseling agencies, however, charge high fees and may not always provide you with the assistance that you need. Therefore, when choosing a credit counseling agency, you should be careful to choose an agency that is approved by the Federal Trade Commission and/or your state’s consumer protection agency. You can also check with your local Better Business Bureau to see if any complaints have been made about the credit counseling agency, and to see if the credit counseling agency is licensed as per the requirements of your state. Once you have decided to work with a particular credit counseling agency, you should make sure that you carefully read any agreements before signing them. You’ll also need to be aware of any fees that the agency is charging you up front or on a monthly basis, as well as the consequences if you are not able to make your payments as agreed. Once you know all of this information, you can better decide whether to use a particular credit counseling agency. 
Typically, a credit counseling agency will help you enter into a debt management plan (DMP) with your creditors, or the people to whom you owe money. Under a DMP, you make certain payments to the credit counseling agency, which then pays the money to your creditors according to a schedule. As a part of this DMP, your creditors might charge a lower interest rate, or waive certain fees. 
Once you have entered into a DMP, you should be sure to make your payments to the credit counseling agency as agreed. The credit counseling agency should provide you with a periodic statement that shows how your payments are being applied to your debts. If you are having trouble making the payments that you agreed to, then you should contact your credit counseling agency immediately. 
Unfortunately, some less reputable credit counseling agencies might not make the payments to your creditors as agreed, or might even close down altogether. If the agency closes, you should notify your creditors that it has closed, and start making payments directly to your creditors again. You should also stop making payments to the credit counseling agency according to the terms of the DMP. If, on the other hand, you find that the credit counseling agency is not making the payments to your creditors as scheduled, you’ll need to contact your creditors immediately and make arrangements to pay the creditors directly. 

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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