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Credit Cards, Featured, Pay Down My Debt

Guide to Credit Counseling: 7 Key Questions to Ask

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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If you have little knowledge on the topic of personal finance and are struggling with your own money issues, you might want to think about getting credit counseling.

Credit counselors can help you set a budget and advise you on how to manage your debt, which can include credit card debt, student loan debt and even housing debt.

Reputable credit counseling organizations have certified counselors who are trained in consumer credit, budgeting, and money and debt management. Credit counselors will work with you to come up with an individualized plan to address any money problems you may have. This can be done in person, over the phone or online.

Seeking credit counseling is typically voluntary but can be required when filing for bankruptcy. In this guide, we’ll answer some key questions you might have about credit counseling and whether it’s right for you.

How do you find a credit counselor?

Before settling on a credit counseling organization, do your homework to make sure they are not only reputable but will also be the most helpful for your particular financial circumstances. Check with your state’s attorney general and consumer protection agency to see if there have been any complaints filed against the organization.

Ensure that the organization is accredited and certified. Check to see if they are members of the National Foundation for Credit Counseling or the Financial Counseling Association of America. Most non-profit credit counseling agencies are associated with these organizations.

When researching agencies, first ask what information or educational materials they provide for free. Organizations that charge for information are typically more interested in their bottom line than in helping you. Also, ask about the types of services they offer. Limited services can be a red flag. The fewer services they offer, the fewer solutions they may provide for you.

You should also attempt to understand the organization’s fee system — not only how much services will cost but also how employees are paid. If employees make more based on the number of services you receive, look for another credit counseling organization.

MagnifyMoney has come up with a list of some of the best credit counseling options, which is a great place to start. If you are looking for credit counseling as a pre-bankruptcy measure, the U.S. Trustee Program has a list of approved credit counseling agencies that can provide pre-bankruptcy counseling.

How much does credit counseling cost?

Credit counseling can involve both start-up and monthly maintenance costs. The Department of Justice says that $50 per month is a reasonable fee. Further, the National Foundation for Credit Counseling (NFCC) suggests that a start-up fee should not exceed $75 and monthly maintenance fees should not be more than $50 per month.

Credit counseling agencies may offer fee waivers or reductions, depending on your income levels. Where credit counseling is required, the DOJ says that, if household income is less than 150% of the current poverty line, the client is entitled to a fee waiver or reduction.

Other regulations, such as when fees can be collected and circumstances that would warrant a fee reduction or waiver, may also be outlined by your state.

How long does credit counseling last?

While the length of your credit counseling session depends on the complexity of your financial problems, sessions typically last 60 minutes. After the initial session, credit counselors will follow up to ensure you understand the actions you need to take and that you have been able to get started on the plan they developed. Another session may be necessary depending on how your financial situation unfolds following the first session.

What do you accomplish with credit counseling?

According to the NFCC, reputable counseling involves three things. First, there must be a review of a client’s current financial situation. You cannot move forward unless you know from where you are starting. Second, there should be an analysis of the factors that contributed to the client’s bad financial situation. You don’t want bad habits to undermine your progress. Lastly, there must be a plan to address the situation without incurring negative amortization of debt. Negative amortization occurs when the amount of debt you have increases because you aren’t paying enough to cover the interest, even though you are making payments.

Understanding these three factors of good credit counseling gives you a place to start in improving your financial situation.

What is the difference between credit counseling and debt management programs?

A debt management plan is just one solution a credit counselor may recommend based on your financial situation. Having a debt management plan is not the same as credit counseling.

A debt management plan involves the credit counseling organization acting as an intermediary between you and your creditors. Each month you will deposit an agreed upon amount of money to your credit counseling agency, which they will, in turn, apply it to your debts.

The credit counseling agency works with your creditors to determine how the amount will be applied each month, and negotiates interest rates and any fee waivers. It’s important to call your creditors directly to check whether they are open to negotiating interest rates or offering waivers for fees. In some cases, a credit counseling firm may promise to negotiate those items for you but be stonewalled when they discover a creditor isn’t even open to the discussion.

Before agreeing to a debt management plan, make sure you understand any fees associated and any choices you might be giving up. For example, some debt management plans may require you to give up opening up new lines of credit for a specified period of time. Remember that a debt management plan is just one of many solutions a credit counselor may advise you to consider.

How does credit counseling impact your credit score?

Not directly. While the fact you are in credit counseling may show up on a credit report, that does not affect your credit score. The actions you take as a result of credit counseling, however, can impact your score.

For example, if you don’t choose a reputable credit counseling agency, the agency may submit a payment on your behalf late to your creditors. So even though you submitted your payment on time to the credit counseling agency, your score may still be dinged. This is just one reason why it’s important to make sure you use a reputable credit counseling agency.

Who should consider credit counseling, and when?

While credit counseling is sometimes required, such as in instances of bankruptcy, you always have an ability to seek credit counseling.

Boston-based Bankruptcy attorney Julie Franklin explains, “For bankruptcy purposes, there are two course requirements — a debtor must complete the first credit counseling course prior to filing and obtain a certificate that is filed with the court in their initial bankruptcy petition documents. Post bankruptcy filing, the debtor is required to take a second course, and upon completion, the certificate that is issued must be filed with the court in order for the debtor to obtain an order of discharge.”

Anyone struggling with their personal finances can consider credit counseling as an option. Franklin also notes that “the first credit counseling course is a tool for debtors, as it compels the individual taking the course to closely examine the household assets, income, liabilities and spending habits to determine if there’s a way to save the debtor from having to file bankruptcy.”

If you are considering bankruptcy, you will have to attend some credit counseling anyhow, but doing so could also help you avoid filing for bankruptcy at all. Keep in mind that filing for bankruptcy will always have a significant effect on your credit score, and can hurt your changes for getting loans or new credit for years to come. If you can avoid it, you probably should.

Voluntary credit counseling might not help if you are already being sued to have a debt collected. However, you may be able to negotiate terms with the debt collector that result in a withdrawal of the suit if you agree to enroll in credit counseling and possibly a debt management program. Not all creditors will agree to such terms, but it is possible.

Bottom line

Many people run into trouble with their finances, whether they have too much credit card debt, are struggling to make their housing payments or just find general budgeting to be a challenge. Some people are dealing with more serious issues, such as potential bankruptcy. There are credit counselors available to help you with any difficult financial situation you may be facing. The most important thing is to ensure you work with a reputable credit counseling agency, so do your research first. A good credit counselor can help you get on the road to financial health, but working with a bad one can lead to more problems than you already have.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Liz Stapleton
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Liz Stapleton is a writer at MagnifyMoney. You can email Liz here

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Featured, Health

5 Ways to Keep Medical Debt From Ruining Your Credit

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Your physical well-being isn’t the only thing at stake when you go to the hospital. So, too, is your financial health.

According to the Consumer Financial Protection Bureau, more than half of all collection notices on consumer credit reports stem from outstanding medical debt, and roughly 43 million consumers – nearly 20% of all those in the nationwide credit reporting system – have at least one medical collection on their credit report.

Now, you might be inclined to think that, because you’re young or have both a job and health insurance, medical debt poses you no risk. Think again. According to a report from the Kaiser Family Foundation, roughly one-third of non-elderly adults report difficulty paying medical bills. Moreover, roughly 70% of people with medical debt are insured, mostly through employer-sponsored plans.

Not concerned yet? Consider that a medical collection notice on your credit report, even for a small bill, can lower your credit score 100 points or more. You can’t pay your way out of the mess after the fact, either. Medical debt notifications stay on your credit report for seven years after you’ve paid off the bill.

The good news is that you can often prevent medical debt from ruining your credit simply by being attentive and proactive. Here’s how.

Pay close attention to your bills

Certainly, a considerable portion of unpaid medical debt exists on account of bills so large and overwhelming that patients don’t have the ability to cover them. But many unpaid medical debts catch patients completely by surprise, according to Deanna Hathaway, a consumer and small business bankruptcy lawyer in Richmond, Va.

“Most people don’t routinely check their credit reports, assume everything is fine, and then a mark on their credit shows up when they go to buy a car or home,” Hathaway said.

The confusion often traces back to one of two common occurrences, according to Ron Sykstus, a consumer bankruptcy attorney in Birmingham, Ala.

“People usually get caught off guard either because they thought their insurance was supposed to pick something up and it didn’t, or because they paid the bill but it got miscoded and applied to the wrong account,” Sykstus said. “It’s a hassle, but track your payments and make sure they get where they are supposed to get.”

Stay in your network

One of the major ways insured patients wind up with unmanageable medical bills is through services rendered – often not known to the patient – by out-of-network providers, according to Kevin Haney, president of A.S.K. Benefit Solutions.

“You check into an in-network hospital and think you’re covered, but while you’re there, you’re treated by an out-of-network specialist such as an anesthesiologist, and then your coverage isn’t nearly as good,” Haney said. “The medical industry does a poor job of explaining this, and it’s where many people get hurt.”

According to Haney, if you were unknowingly treated by an out-of-network provider, it’s would not be unreasonable for you to contact the provider and ask them to bill you at their in-network rate.

“You can push back on lack of disclosure and negotiate,” Haney said. “They’re accepting much lower amounts for the same service with their in-network patients.”

Work it out with your provider BEFORE your bills are sent to collections

Even if you’re insured and are diligent about staying in-network, medical bills can still become untenable. Whether on account of a high deductible or an even higher out-of-pocket maximum, patients both insured and uninsured encounter medical bills they simply can’t afford to pay.

If you find yourself in this situation, it’s critical to understand that most health care providers turn unpaid debt over to a collection agency, and it’s the agency that in turn reports the debt to the credit bureaus should it remain unpaid.

The key then is to be proactive about working out an arrangement with your health care provider before the debt is ever sent to a collection agency. And make no mistake – most providers are more than happy to work with you, according to Howard Dvorkin, CPA and chairman of Debt.com.

“The health care providers you owe know very well how crushing medical debt is,” he said. “They want to work with you, but they also need to get paid.”

If you receive a bill you can’t afford to pay in its entirety, you should immediately call your provider and negotiate.

“Most providers, if the bill is large, will recognize there’s a good chance you don’t have the money to pay it off all at once, and most of the time, they’ll work with you,” Dvorkin said. “But you have to be proactive about it. Don’t just hope it will go away. Call them immediately, explain your situation and ask for a payment plan.”

If the bill you’re struggling with is from a hospital, you may also have the option to apply for financial aid, according to Thomas Nitzsche, a financial educator with Clearpoint Credit Counseling Solutions, a personal finance counseling firm.

“Most hospitals are required to offer financial aid,” Nitzsche said. “They’ll look at your financials to determine your need, and even if you’re denied, just the act of applying usually extends the window within which you have to pay that bill.”

Negotiate with the collection agency

In the event that your debt is passed along to a collection agency, all is not immediately lost, Sykstus said.

“You can usually negotiate with the collection agency the same as you would with the provider,” he said. “Tell them you’ll work out a payment plan and that, in return, you’re asking them to not report it.”

Most collection agencies, according to Haney, actually have little interest in reporting debt to the credit bureaus.

“The best leverage they have to get you to pay is to threaten to report the bill to the credit agencies,” he said. “That means as soon as they report it, they’ve lost their leverage. So, they’re going to want to talk to you long before they ever report it to the bureau.

“Don’t duck their calls,” he added. “Talk to them and offer to work something out.”

Take out a personal loan

Refinancing your medical debt into a personal loan is another move you can consider making, particularly if you can get a lower interest rate than you could with a credit card, and you aren’t able to secure a 0% credit card deal. Peer-to-peer lenders LendingClub and Prosper both start with APRs as low as 6.95%, and LendingClub’s origination fee starts as low as 1%.

Even better, SoFi offers personal loans at a rate as low as 5.99% and has no origination fee (although you do need a relatively high minimum credit score to get a loan, at 680).

MagnifyMoney’s parent company, LendingTree, features a handy personal loan tool where you can shop for the best loan for you.

Bottom line

Dealing with medical debt can be particularly stressful, as you have to worry about money matters along with managing health issues. However, having medical debt does not have to spell disaster. If you follow one or more of the steps above, you should be able to keep your finances healthy.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Have a question to ask or a story to share? Contact the MagnifyMoney team at [email protected]

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Featured, Health, News

How Weight Loss Helped This Couple Pay Down $22,000 of Debt

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Photo courtesy of Brian LeBlanc

Brian LeBlanc was fed up. The 30-year-old policy analyst from Alberta, Canada, had struggled with his weight for years. At the time, he weighed 240 pounds and had trouble finding clothes that fit. He decided it was time to change his lifestyle for good.

LeBlanc started running and cutting back on fast food and soft drinks. He ordered smaller portions at restaurants and avoided convenience-store foods. About a year into his weight-loss mission, his wife Erin, 31, joined him in his efforts.

“The biggest change we made was buying a kitchen food scale and measuring everything we eat,” Brian says. “Creating that habit was really powerful.”

Over two years, the couple shed a total of 170 pounds.

But losing weight, they soon realized, came with an unexpected fringe benefit — saving thousands of dollars per year. Often, people complain that it’s expensive to be healthy — gym memberships and fresh produce don’t come cheap, after all. But the LeBlancs found the opposite to be true.

Erin, who is a payroll specialist, also managed their household budget. She began noticing a difference in how little money they were wasting on fast food and unused grocery items.

Photo courtesy of Brian LeBlanc

“Before, we always had the best intentions of going to the grocery store and buying all the healthy foods. But we never ate them,” she says. “We ended up throwing out a lot of healthy food, vegetables, and fruits.”

Before their lifestyle change, Brian and Erin would often eat out for dinner, spending as much as $80 per week, and they would often go out with friends, spending about $275 a month. Now, Brian says if they grab fast food, they choose a smaller portion. Now they might spend only $22 on fast food per month, instead of over $200.

What’s changed the most is how they shop for groceries, what they buy and how they cook. Brian likes to prep all his meals on Sunday so his lunches during the week are consistent and portion-controlled. They also buy only enough fresh produce to last them a couple of days to prevent wasting food.

Losing weight — and student loan debt

Photo courtesy of Brian LeBlanc

Two years after the start of their weight-loss journey, they took a look at their bank statements to see how their spending had changed. By giving up eating out and drinking alcohol frequently, they were spending $600 less a month than they used to, even though they’ve had to buy new wardrobes and gym memberships.

With their newfound savings, the LeBlancs managed to pay off Brian’s $22,000 in student loans 13 years early. Even with the $600 they were now saving, they had to cut back significantly on their budget to come up with the $900-$1,000 they aimed to put toward his loans each month. They stopped meeting friends for drinks after work, and Erin took on a part-time job to bring in extra cash. When they needed new wardrobes because their old clothing no longer fit, they frequented thrift shops instead of the mall.

When they made the final payment after two years, it was a relief to say the least.

Now the Canadian couple is saving for a vacation home in Phoenix, which they hope to buy in the next few years, and they’re planning to tackle Erin’s student loans next. They’re happy with their weight and lives in general, but don’t take their journey for granted.

“There were times we questioned our sanity, and we thought we cannot do this anymore,” says Erin. But they would always rally together in the end.

“There are things that are worth struggling for and worth putting in the effort,” Brian says. “Hands down, your health is one of those things.”

Other Ways Getting Healthy Can Help Financially

Spending less on food isn’t the only way your budget can improve alongside your health. Read below to see how a little weight loss can tip the scales when it comes to your finances.

  • Spend less on medical bills. Health care costs have skyrocketed over the past two decades, but they’ve impacted overweight and obese individuals more. A report on the “state of obesity” in America found that obese adults spend 42% more on healthcare per year than those of normal weight.
  • Buy cheaper clothes. Designers frequently charge more for plus-size clothing than smaller sizes. Some people claim retailers add a “fat tax” on clothes because there are fewer options for anyone over a size 12. It might not be fair, but it’s the way things are.
  • Save on life insurance. Your health is a huge factor for life insurance rates. Annual premiums for a healthy person can cost more than for someone who is overweight, because BMI (body mass index) may be a factor for determining pricing.

Getting Healthy for Cheap

Still worried that an active lifestyle will require you to spend more money? Here are some tips on keeping costs low while you improve your lifestyle.

  • Get a family membership. Gyms often provide a discount if you sign up for a family membership instead of an individual one. Most of these deals are only beneficial for households with children, but some might offer a lower price if you sign up with a spouse or partner. Always ask the gym about any special deductions they might have.
  • Skip the fancy gym. Many would-be exercisers skip the gym pass because they assume it will be expensive. Before you give up, call around and compare prices. Try your local YMCA, as they often have income-based membership.
  • Shop at thrift stores. Finding inexpensive workout clothes can be another barrier to exercising. Who wants to spend $75 on yoga pants? Don’t visit the mall for your new duds. Your local thrift shop or consignment store will have running shorts and tank tops for only a few dollars. Secondhand clothes also make more sense if you’re in the midst of losing a lot of weight and changing sizes frequently.
  • Go vegetarian. Meat is often the most expensive item in your grocery cart. If you’re trying to eat healthier and concerned about money, try vegetarian protein options like lentils, beans,and quinoa. You don’t have to fully adopt the vegetarian lifestyle, but just reducing your meat intake can have a significant impact on the grocery bill.
  • Buy frozen produce. Frozen produce is often as healthy as buying fresh, but it can be significantly less expensive. Frozen veggies and fruit also last longer, decreasing the risk of food waste. You can often find coupons, and the long shelf life makes it easy to stock up if there’s a sale on your favorite green beans.
  • Cut back on eating out. Ever wonder how restaurant-quality food can be so much better than what you make at home? You guessed it: more salt, more sugar, more butter and more fat. By limiting the meals you eat out, you’ll avoid all that — as well as those outrageous restaurant markups. If you do eat out, you can do your best to pick the healthy choice. You may also choose to take advantage of cashback credit cards that may reward you for your healthy dining out.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Zina Kumok
Zina Kumok |

Zina Kumok is a writer at MagnifyMoney. You can email Zina here

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