you're in debt, you're not alone. According to the Federal Reserve, Americans
are in $1.98 trillion of debt -- that's more than $18,000 per household. If your
debt is overwhelming, you can seek help from a debt or credit counselor. But whom
do you ask and how do you know they have your best interests
We've gathered the most frequently asked questions
about debt and credit counseling. They should help you on your way
to a more stable financial future.
do I know I need debt counseling?
|There is no
specific amount of debt -- whether it's $5,000 or $50,000 --
that means you need a debt counselor. You need to consider how
much income you have each month, what your expense are and what
your financial plans are. If you can plan a way to get out of
debt yourself, that may be your best bet. If you feel helpless,
overwhelmed or can't figure out a plan, you may need debt
do I find a good debt counselor or credit counselor?
When shopping for help, either for a credit
counseling agency or a debt consolidation agency, keep in
mind that just because a company claims to be nonprofit, doesn't
mean they have your best interest at heart. Be wary of a company
that immediately urges you to join a debt management plan
-- they should take an interest in your particular issues,
not throw you toward a cookie-cutter plan. And like any other
big decision, shop around and ask for all prices and fees
to be stated up front and put in writing.
Bankrate has more in-depth
tips on finding someone to assist you with your debt.
should I be careful of when consulting a debt negotiator?
If you're not careful you may find a company
that will promise to ease your debt -- but actually put you
further in the hole. Some debt negotiators charge hefty fees.
But that's only part of the problem. Your credit takes just
as much of a hit as your wallet.
Here's why. Often, a debt-negotiating
company will tell you to stop making payments to creditors
and to send money to them instead. The money gets placed in
an account until the debt negotiator decides to make an offer
to a credit card company. It could be several months before
a debt negotiator has collected enough money from you to make
a settlement offer to a creditor.
And after several months of not paying your
creditors, your credit will be trashed. Not all debt negotiators
are on the up and up. Some consumers pay high fees and never
get any of their debts settled through a debt negotiator or
debt-settlement company. Contact the Better Business Bureau
to see if the firm has had any consumer complaints. Check
with your state attorney general's office or other state consumer
agencies to find
out if there are any pending legal investigations.
What do I ask the credit counselor?
A few questions you should ask are:
- How do you determine the amount of my
- How will I know my creditors have received
- How often can I get status reports on
- Can you get my creditors to lower or eliminate
interest and finance charges or waive late fees?
- Is a debt-repayment plan my only option?
- What if I can't maintain the agreed-upon
- What debts will be excluded from the debt-repayment
- Who will help me if I have problems with
my accounts or creditors?
Bankrate.com has more
questions you should ask.
these e-mails that promise to eliminate my debt for real?
|No. Your debt
is your debt -- end of story. There is not a magic wand to wave
away your debt problems. Some
of these companies say that they have found a way around
the law -- but if this were true, all credit card companies
would be out of business. Other companies will promise to negotiate
with debt collection agencies to get your debt reduced. But
can do that yourself -- no middleman required.
long will it take me to pay off my debt?
It depends on the interest rate you are paying
and how much you can pay out each month. The more you pay,
the quicker the balance disappears. For example, if you paid
only the minimum amount due on $8,000, which is the average
amount of individual household credit card debt, at an average
annual percentage rate of 13.9 percent, it would take 278
months to be rid of your debt. In that time, you will pay
$6,792.25 in interest. If you added an extra $100 to the payment
each month the savings are dramatic. It would be paid off
in 33 months, and would cost you $1,639.13 in interest.
Use this Bankrate calculator
to figure out how long you will be paying off your debt.
debt-counseling affect my credit?
Using a debt-management plan to pay off debt
won't hurt your credit score, but it may make it difficult
to qualify for new credit.
When you enroll in a debt-management
program, you write a monthly check to a credit-counseling
agency and the agency pays your creditors. A debt-management
plan usually lasts three or four years. A comment stating
that you're paying an account through a credit-counseling
agency appears on your credit report and remains until the
account is paid in full. Such a comment won't hurt your credit
score in the least.
However, if you get involved
with a debt
management agency that is late making payments to your
creditors -- or doesn't make any payments at all -- your credit
will be damaged.
Have a question you don't see cover here? Ask
our Debt Adviser, Steve Bucci.