Credit Card Debt

Credit card debt: Whether it was a lost job, medical costs, or an over-the-top shopping spree (or a few!) that led you to spend beyond your monthly income, you’ve probably been there once or twice. Most families can recover by tightening their belts and faithfully paying down debt, but at least 2 million Americans a year turn to a credit counselor — a financial professional who evaluates your situation and creates a strategy to help you get out of debt — to get back on track.

“If you haven’t been able to get out of debt on your own, you’re a good candidate for credit counseling,” says Lynnette Khalfani, author of Zero Debt. “These counselors can help you negotiate lower interest rates and help get late fees, over-the-limit charges, and other miscellaneous fees reduced or eliminated.” And learning to live debt-free may take less time than you think: One third of those who seek counseling need only one session and can then follow a plan themselves.

“But buyer beware,” Khalfani adds. “There are good and bad credit-counseling companies out there.” Here, how to determine if you need a counselor — and how to find a reputable one.

1. Figure out whether you really need help.

The National Foundation for Credit Counseling (NFCC) suggests that you see a counselor if you’re facing one or more of the following:

  • Your monthly credit card payments amount to more than 15 percent of your take-home pay.
  • You can afford to make only the minimum payments on your bills (or can’t even make the minimum).
    You have to forgo paying some creditors in order to pay others.
  • You find you need to put routine items like groceries on a credit card.

A counselor can review your budget and offer recommendations on how to become debt-free, or can set up and oversee a debt-management plan for you. She may even step in to contact creditors and arrange to stop collections harassment.

The counselor also negotiates how much you’ll pay each creditor every month. You then make one monthly payment to the counseling agency, which disburses it to your creditors.

2. Check the counselor’s credentials.

How to find a good one? For starters, have a look at the U.S. Department of Justice’s list of agencies that have been approved to counsel bankruptcy clients here; these counselors meet government requirements for training and experience and have undergone a criminal background check. These agencies are also bonded, meaning they carry insurance that will cover you for any financial loss due to an employee’s misdeeds. And they’re all nonprofit organizations (for-profit companies have more incentive to try to rush you into higher-fee debt-management programs).

Another good place to look for a credit counselor is the NFCC. Its member agencies (to find them, log on to debtadvice.org) also meet training and ethical standards, are bonded, are nonprofits, and are audited regularly.