Should I Consider Credit Counseling?

Sometimes it helps to get a little help.

Where to Go for Help

It takes time, planning, consistent effort, and determination to pay off debt and build a strong financial future. Luckily, you don’t have to do it alone.

• Financial counselors on military installations understand the financial lives of Service members and can provide free support and resources at every stage of your military career.
• Military aid and relief organizations are official non-profits for each branch of service. They provide financial assistance and community programs to support Service members and their families. Financial support may include grants, interest-free loans, scholarships, and emergency travel assistance. Learn more at Army Emergency Relief, Navy-Marine Corps Relief Society, Air Force Aid Society, Coast Guard Mutual Assistance, and the National Guard Relief Foundation.
• If you need more comprehensive support to pay off your debt, check out a nonprofit credit counseling organization like the National Foundation for Credit Counseling.
• A certified credit counselor may charge a small fee (sometimes it’s waived), but they will meet with you one-on-one to evaluate your personal situation. They’ll teach you money management skills to help get you out of debt, including how to build a budget. The counselor may also help you build a Debt Management Plan (DMP).

Debt Management Plan: The Basics

A Debt Management Plan, or DMP, is not appropriate in all cases, and it is critical that you understand the plan and your responsibilities before agreeing to it. Under a DMP:

• You deposit money each month with the credit counseling organization
• The credit counseling organization uses your deposits to pay your debts included in the plan according to a payment schedule the counselor develops with you and your creditors
• Your creditors may agree to lower your interest rates or waive certain fees

A successful DMP requires you to make regular, timely payments. It could take 48 months or more to complete your DMP. Ask the credit counselor to describe how long it will take for you to complete the plan. You may have to agree not to apply for, or use, any additional credit while you’re participating in the plan. It’s also a good idea to check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you.

For-Profit Credit Repair Organizations

It’s normally a good idea to avoid for-profit credit repair organizations or other entities that offer quick results with no impact on your credit reputation. These types of businesses are not the same as nonprofit credit counseling organizations. By understanding how they work, you can know what to look out for.
Credit repair organizations may:

• Offer a to create a debt settlement program, not the debt management plan offered by legitimate nonprofit credit counseling organizations
• Charge you a fee to negotiate a “settlement” on your behalf to resolve your debt that is often a lump sum less than the full amount that you owe
• Require you to set money aside in a specific account (like an escrow account) until you’ve saved enough to make the lump-sum payment
• Direct you to stop making monthly payments to your creditors

These tactics often seem very appealing to people struggling under the burden of debt, but to be clear, they often create significant additional risks and should generally be avoided.