Tragically, many families lose their homes unnecessarily simply because the owners didn’t know what to do when financially troubled times hit. Sometimes, however, in trying to do the best thing, the debtors accept the first help offered; help that turns out to be from a credit-counseling agency that takes advantage of the already debt-stressed individual and ends up doing more damage than good. It pays to know the difference between a reputable, non-profit agency that can be of significant assistance and one that can further damage your ability to avoid foreclosure.
Many credit counseling agencies, some even claiming to be non-profit, are designed to do nothing more than protect the interests of the credit card companies. The debt that is accrued through the use of credit cards is “unsecured.” This means that the lending institution behind the card can’t repossess anything to mitigate their losses when the cardholder doesn’t pay. You will want to avoid a so-called credit counseling agency that solicits subscribers with the lure of keeping the collection agencies away, protecting credit scores, and negotiating forgiveness of certain fees or charges with the creditor. They not only are paid a hefty fee by the person with the financial problems, but also are paid an additional percentage from the credit card companies for collecting on their delinquent accounts.
The type of debt in a home mortgage is “secured” which means that the lender can take back the borrower’s home if payments are not made according to the schedule laid out in the mortgage contract. The work many credit counseling agencies do toward collecting unsecured accounts will only worsen the subscriber’s ability to protect his home by diverting funds away from where they are needed the most. Fortunately, finding the appropriate help simply takes knowing what to look for.
The following web sites from trusted sources offer listings of agencies in your area that have been evaluated to be reputable and non-profit:
- The Department of Justice/U.S. Trustee’s Credit Counseling Office http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm
- Association of Independent Consumer Credit Counseling Agencies (AICCCA)
- National Foundation for Credit Counseling (NFCC)
Managing your money intelligently begins with making well-informed business decisions. A good counselor will respect you for asking questions and will have answers that he/she is proud to give without making excuses. Every item on the following checklist of issues to address will be very easy for an honest counselor to answer. If the counselor has any difficulty providing answers or puts you off by claiming to need a check or promising to get back to you later, you should be alarmed that this is probably not someone that it would be wise to work with. Plan on interviewing at least three agencies before you make a final decision regarding which one is most appropriate for your needs.
- A reputable counseling agency should have professional affiliation such as with the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA) and must be licensed to conduct business in your state.
- Ask about how the counselors are trained. It is important that counselors have received education through professional organizations or schools, not merely be trained by the company they are working for.
- A reputable agency will send you free information about itself and the services it offers before requiring that you provide any personal information other than a mailing address . It should also be willing to include free educational materials at your request. If it doesn’t, you should go elsewhere.
- Ask the agent to explain all the types of services the agency offers. Does it include education in budgeting and managing savings separate from participation in other services? Avoid agencies that only make additional services available as part of an agreement to subscribe to their Debt Management Plan, or if they won’t discuss these offerings until they have analyzed your financial situation.
- Obtain a complete price quote in writing. Ask about any set-up fees and additional monthly fees. Be sure that all the verbal promises made to you are included in this price quote. If they aren’t, you can’t count on receiving them. You should expect to pay around $75 for a set-up fee and monthly fees should not exceed $40. If the agency charges more, you would be smart to continue shopping for a different provider.
- Find out how the agents are paid. In some agencies staff members earn more money if they get you to make a donation to the center or if they get you to pay for additional services. Doing business with an agency that pays their agents in this manner is not in your best interest.
- Ask what will happen if you can’t afford to pay their fee. A reputable non-profit agency will offer to work with you to make their services affordable.
- Your creditors should receive 100% of the money you pay to them through the agency. None of this money should be directed anywhere else.
- Also ask about what the agency does to protect the confidentiality of your information. Will your address or any other personal information ever be sold or shared? Family financial matters are private and your identity should be safeguarded.
- Do not sign a contract or agreement until you read it completely. Take it home so that you can review it at your own pace, without feeling rushed or with the distraction of someone talking to you while you are trying to review the details. Make a list of questions you have and follow up by asking for an explanation in a second meeting or phone call later. Smart money management starts with never signing anything that is not completely understood.
After you have interviewed and selected an agency to work with, follow up by checking for possible complaint records with the Better Business Bureau at http://www.bbb.org/reports.asp , or with your state’s Office of the Attorney General. They will be able to tell you if complaints have been registered against the agency and whether or not they were resolved.
A good credit counselor will help you to prepare a budget and direct you to other organizations that may be able to help you extend your resources. He/she will help you understand what expenses are most important and explain how to prioritize your payments in order to serve your own best interests. The development of a step-by-step plan covering your total financial picture is an essential tool for your success.
In an effort to help you avoid foreclosure, the credit counselor will probably want to discuss some mortgage payment options that you might not know are available to you. Even if you haven’t lived in your home for a long time, you may be in a position to negotiate more manageable terms with the lender.
Over the last several years, adjustable rate mortgages (ARM) were offered with very low interest rates that would be raised periodically. While they may be beneficial to people expecting their income level to increase each year in an amount that would comfortably cover the higher cost of their house payments, the reality of our current economy is that wages have failed to keep pace with these rising interest rates. If you have an ARM that is going to result in payment levels that are beyond your means, your credit counselor may suggest mortgage restructuring. Your lender may have the power to temporarily freeze your current interest rate and adjust the schedule of increases in order to help you avoid foreclosure.
If your mortgage carries an interest rate that is higher than what is currently being offered, a credit counselor may be able to help you negotiate with your lender for a lower interest rate. This would involve making an amendment to the current contract. Lenders who are willing to renegotiate a new interest rate are generally not going to go as low as the current rate, but this is a simpler and less expensive process than refinancing.
Fixed rate mortgage interests rates were running higher than 10% in the early 1990’s. If you purchased your home at that time, your interest rates are likely to be considerably higher than the currently available rates of less than 6%. Your credit counselor might suggest refinancing if it would significantly reduce your payments. This could be helpful but if you do not remain in that home long enough to recover the closing costs, the expense associated with this option may outweigh the benefit. You should also be aware that if the appraisal reveals that your property value has decreased, the home might not qualify for refinancing. Unfortunately, this will leave you out-of-pocket for the appraisal fee.
A reputable, non-profit credit counseling agency can only educate and offer guidance. It is up to the individual to take positive action by developing and following an informed plan to avoid foreclosure and reclaim a state of financial well being. Success rarely happens accidentally.