Credit Counseling Programs

What are credit counseling programs?

Am I eligible?

What benefits will I get?

What are debt management plans?

How does a debt management plan work?

How much does it cost?

How do I apply?

Useful links

What are credit counseling programs?

Credit counseling programs are programs for people who are having trouble paying off their debts or have other financial questions. Credit counseling programs offer financial counseling, debt management plans, bankruptcy information, foreclosure prevention, and other money management services.

In Massachusetts, credit counseling programs are offered by non-profit organizations such as the Consumer Credit Counseling Service (CCCS). These organizations get their funding from grants, contributions from creditors, private contributions, and client fees.

Am I eligible?

All Massachusetts residents are eligible for credit counseling programs. If you have questions about your financial situation or need help getting out of debt, you can get free advice from a credit counseling program.

If you need extra help to pay back your debts, you might decide to enroll in a debt management plan. A debt management plan is for people who cannot manage their debts on their own. To be eligible for a debt management plan, you must have unsecured debts such as store and bank credit cards, personal loans, medical bills, or overdue utility bills. In some cases, you must owe at least a minimum dollar amount (for example $2000) before you can enroll.

What benefits will I get?

Most credit counseling programs offer a variety of services such as:

• Personal financial advising
• Debt management plans
• Credit report analysis
• Bankruptcy information
• Homebuyer counseling
• Foreclosure prevention
• Identity theft awareness
• Financial education classes

You can get credit counseling services by phone, online, or in person.

Personal financial advising is usually the first service you get. A counselor will go over your finances with you and help you work out a solution to your credit problems. The counselor will help you develop a budget and an action plan to reach your goals.

If your credit problems are serious, and you cannot manage your debt on your own, the counselor may suggest a debt management plan.

What are debt management plans?

Debt management plans are special payment plans to help you pay off your debts when you cannot manage to pay them off on your own. A credit counselor works with you and your creditors to set up a repayment plan that you can afford.

Creditors agree to negotiate because they know that you are working with a credit counseling program to try to pay off your debts.

If you enroll in a debt management plan, the plan will include all of your unsecured debts. Unsecured debts are store and bank credit cards, lines of credit, and personal loans. The plan may also include tax obligations, overdue utility bills, and medical bills. The plan will not include secured debts, such as mortgages or car loans.

A debt management plan (DMP) will not fix bad credit. However, if you make your payments on time, a debt management plan will usually prevent bad credit from getting any worse. Once you have paid off your debts, you can start building up your credit again.

How does a debt management plan work?

Debt management plans (DMPs) work like this:

1. Your financial counselor collects information from you about your debts, your expenses, and your income. You and your counselor discuss all of your options and agree that a debt management plan is the best option for you.

2. You sign a written agreement that states the services you will get and the fees you must pay, if any.

3. The financial counselor contacts all of your creditors to let them know you are enrolling in a debt management program. In most cases, the creditors will close your existing accounts to prevent you from going further into debt.

4. The counselor negotiates with each of your creditors to set up a new repayment plan for your debts. The new plan may have lower monthly payments, a lower interest rate, reduced late fees and over-limit fees, or other lower costs.

5. The counselor adds up your new monthly payments and makes sure the total is within your budget. Your budget must also include any secured debts that you have, such as a mortgage or car payment.

6. You make one monthly payment to the debt management plan to cover all of your debt payments for the month. Your DMP distributes the money to your creditors.

7. You get a statement each month from your DMP showing your payments and balances. You might also get monthly statements from your creditors. You should check all of your statements to make sure your creditors are getting their payments on time. Late payments will show up on your credit report.

8. On average, if you follow your plan, you will pay off your debts in 3 to 5 years.

Even if you are in a debt management plan, you are still legally obligated for your debts until they are paid off. If a creditor tries to collect more money from you, ask the creditor to talk to your DMP account manager.

How much does it cost?

Most credit counseling services from trustworthy non-profit organizations are free. If a credit counseling program charges a fee to talk to you about your finances, you should go elsewhere. A credit counselor should be willing to review your finances with you, and set up a budget and action plan for free.

If you decide to enroll in a debt management plan, you might have to pay these fees:

• Enrollment or set-up fee: This is a one-time fee that you pay when you join a debt management plan. The enrollment fee should be no more than $40 to $75. Some organizations waive the fee for students, seniors, veterans, and hardship cases.

• Monthly fees: Monthly account fees help cover the administrative costs of managing your account. The monthly fee may be a flat fee per creditor, or a percentage of your total monthly payment, up to a set maximum. The maximum monthly fee should be no more than $40.

If you cannot afford the fees, ask the credit counseling program if they will waive the fees or use a sliding fee scale. Most programs will help you even if you cannot pay.

In Massachusetts, credit counseling programs are run by non-profit organizations. Fees, if any, should be low. Make sure you get the fees in writing. Do not sign anything you do not understand.

How do I apply?

To get credit counseling, just call a credit counseling organization and ask to speak to a financial counselor. You can find a list of approved credit counseling agencies on the U.S. Department of Justice web site:

• U.S. Department of Justice Approved Credit Counseling Agencies - Massachusetts

  Note: Many of the agencies on this list are not located in Massachusetts. However, they are nationwide agencies approved by the Department of Justice to provide credit counseling by phone or online to Massachusetts residents.

For help in choosing a debt management plan, see the Federal Trade Commission's Must-Do List for People on Debt Management Plans.

You can Check out a Business or Charity on the Better Business Bureau web site to see if complaints have been filed against an agency. You can also call the Massachusetts Attorney General's Consumer Hotline at 617-727-8400 for information.

Shop around and compare services and fees before you sign any contracts.

Useful links

These links are external links to web sites that are not part of MassResources.org. When you click on these links, you will leave our site. Click "Back" on your browser to return.

1. Fair Debt Collection
   Your rights regarding debt collection and the rules debt collectors must follow in Massachusetts. Includes Debt Collection Regulations 940 CMS 7.00. From the Massachusetts Attorney General's Office.

2. Better Business Bureau (BBB)
   Official web site of the Better Business Bureau. Includes:

   • Check out a Business or Charity
   • BBB Tips on Choosing a Credit Counseling Agency
   • Find a Local BBB

Credit Counseling section last updated on 4/15/10