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| CNN's Gerri Willis shares five tips on what to look for when choosing a credit counselor. (October 17) |
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NEW YORK (CNN/Money) -
The new bankruptcy law that goes into effect today will require filers to seek credit counseling.
Consumer advocates say: Beware. While some counselors are legit, others are scammers, charging high fees for services you could provide for yourself.
In today's top 5 Tips, we're going to give you the 411 on choosing a credit counselor.
1. Get the personal touch
A good credit counselor will work with you to help you solve your financial problems, drawing up a budget and helping you manage both your money and your debt. You'll be better off getting in-person counseling, rather than advice over the Internet or phone.
Some good places to go to find help include: Your bank, university, military bases, credit unions, housing authorities and branches of the U.S. Cooperative Extension Service. Also check out the U.S. Department of Justice's list of legit counselors at this Web site.
2. Watch out for fees.
Just because a credit counselor is non profit doesn't mean its services are free to you. Illegitimate counselors charge high fees, some of which aren't well disclosed. Others ask for voluntary contributions.
Counselors shouldn't ask for information about your situation before agreeing to send you information about their services. Another red flag: A counselor that won't take you on as a client because you can't afford their fees. Be sure to get a quote in writing for the set up and monthly fees.
3. Check their credentials
Ask whether the counselor you want to work with is licensed in the state where you live. Ask how their counselors are trained. Look for counselors that are accredited or certified by an outside organization. Ask how counselors are compensated.
One red flag: If counselors get extra compensation for getting clients to opt into fee-laden services, like debt management plans.
4. Grill the candidates.
Ask how the agency guards your private information, such as your address, phone number or financial information. Let's face it, if you're facing a lot of debt; the last thing you want to deal with is having your credit card numbers stolen or worse, your identity.
5. Beware management services
If you're going to a credit counselor because you intend to file for bankruptcy, beware agencies that may try to push you into expensive debt management programs. DMPs are arrangements in which the debt counselor takes over paying your bills using your money. In exchange for the service, they get a fee.
The programs are controversial, and you should be aware that entering a DMP isn't required by the new bankruptcy law. The new law requires only two sessions; one a 90-minute credit counseling session within six months of filing and the other an educational session when you file.
Gerri Willis is a personal finance editor for CNN Business News and the host for Open House. E-mail comments to 5tips@cnn.com.
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