Credit counseling

A credit counselor may help you resolve your bills. Most specialize in "unsecured" debts like credit cards and personal loans, rather than "secured" debts - those backed by an asset like a mortgage or car loan.

The law requires credit counseling for someone declaring personal bankruptcy. Some counseling services are better than others. It is important to avoid problem credit counselors. Ask questions, and choose a firm that tells you exactly what to expect.

1. What are the services offered? Don't settle for a credit counselor that offers only a "debt management plan" (a way of combining all your debts and paying them off under one loan). Look for a program that offers classes in budgeting and saving, and ask whether the counselor can work with all of your creditors. Choose a firm that will sign a written agreement with you, including details about services to be provided, guarantees, the time frame, cost, and payment terms.

2. How do they make their money? If the employees get a sales commission by signing you up for a debt management plan, be careful. If a counseling firm salesperson seems to be recommending a plan without knowing anything about your situation, or pressures you to sign up before giving you enough information, look for another counselor.

3. How much will it cost? The setup fee for a debt management or debt consolidation plan may be about $50 to $75, with a monthly fee of no more than $25 to $50. If you cannot afford this, ask whether the counselor will provide service for a lower fee or without charge. Beware of firms that want to take your entire first month's payment to pay themselves instead of your creditors. Be sure you know how much of your monthly payment will go toward your debts and how much will go to the credit counseling firm.

4. What will happen to my credit score? Be sure you understand exactly what the counselor will do to help you pay down your debts. Ask how the counselor handles timely payment of bills - remember that missing deadlines brings down your credit score.

5. What will happen to my private financial information? Get a written copy of the firm's privacy policy. Ask them to explain how they will use and protect your personal financial information. Look for a company that will not give your financial information to others unless you authorize it or the law requires it.

6. What are the firm's credentials and track record? Ask if the agency is approved by the U.S. Department of Justice to provide credit counseling and debtor education (see the Resources section to find a list online). Make sure the credit counseling firm is licensed or registered if required in your state. Ask about your counselor's professional qualifications and success rate. Even if a firm appears to nonprofit, check with your state Attorney General or Better Business Bureau for any consumer complaints against the company.