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Credit Card Terms

When you receive credit card offers in the mail, examine the fine print before you accept any offer. Review the following items very carefully:

Annual Percentage Rate (APR) - determine if it varies, how the variation is determined and when can it change.
Period Rate - This is the interest rate used to figure the finance charge on your balance.
Annual Fee - Amount you pay to be a cardholder. All cards do not charge an annual fee.
Grace period - This is the number of days you have to pay your bill before finance charges begin to accrue.
Finance charges - Most lenders calculate finance charges using an average daily account balance. Look for offers that use an adjustable balance which subtracts your payment from your beginning balance.
Other fees - Ask about special fees when you get a cash advance, make a late payment or go over your credit limit.

The Fair Credit and Charge Card Disclosure Act requires credit and charge card issuers to include this information on credit applications.


Teaser Rates - these types of rates are low for a short period of time and then escalate to a higher rate on the balance. Sometimes one late payment could cancel the teaser rate.
Offer to skip a credit payment - If your credit card company invites you to skip a payment without penalty, you may still owe finance charges on your unpaid balance and the interest will probably be added to purchases you made after the due date you skipped.

Be thorough in your examination of all credit card offers; it could save you hundreds or even thousands of dollars.

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Credit counseling

Credit counseling is a process offering education to consumers about how to avoid incurring debts that cannot be repaid. Consumer credit counseling services provide confidential counseling on managing credit and getting out of debt, assistance in negotiating better terms with your creditors, and guidance on budgeting your money and meeting your debt obligations.

The National Foundation for Credit Counseling (NFCC) member agencies provide comprehensive money management services based on your individual needs. Members provide free and/or affordable services, which are offered in-person or by phone. Many agencies also offer web-based services.

Guidelines for Selecting the Right Credit Counselor

Regardless of your particular need, selecting the right credit counselor is vital. Unfortunately, some organizations, including some that label themselves "nonprofit credit counseling agencies," may be more interested in their own bottom line than in helping their clients. A 2005 report by a U.S. Senate investigating committee observed: "Some new entrants to the industry, however, have developed a completely different business model - a 'for-profit model' designed so that their non-profit credit counseling agencies generate massive revenues for for-profit affiliates."

By contrast, the report lauded the National Foundation for Credit Counseling (NFCC) for its commitment to ethical credit counseling that is provided at low cost to consumers. The report stated that ". . . if applied throughout the industry, these [NFCC] professional standards could significantly address the abusive practices identified in this Report."

Consumers need to "know the difference" when selecting a credit counselor. And they must know the warning signs of a credit counseling agency who might not have your best interests in mind. The following information can serve as a valuable guide to help consumers "know the difference" when choosing a credit counseling agency.

How to Select a Legitimate Credit Counseling Agency
If you're considering using a credit counselor, shop around, and ask each agency the following questions. More importantly, be certain that you are comfortable with their answers before you book that first appointment. A legitimate agency is always more interested in your bottom line than theirs.

* Is the agency affiliated with a national body such as the National Foundation for Credit Counseling (NFCC) that requires strict quality, financial and ethical standards for membership? Examples of such requirements are annual audits by an independent CPA, written action plans provided to each consumer, and consumers provided with statements at least quarterly.

* Is the agency accredited by an independent third party? Self-accreditation is not the answer you want. An example of a reputable third party accreditating body is the Council on Accreditation (COA). Such accreditation signifies that appropriate checks and balances are in place to protect you, the consumer.

* Is the agency a 501(c)(3) nonprofit community organization? Being a nonprofit does not guarantee that the agency is legitimate, but it is a step in the right direction.

* What is the composition of their Board of Directors? Board members should not be paid by the agency, should not be family members or friends, but should represent a wide cross-section of the community and civic interests.

* What services does the agency offer? A wide-range of services is a good sign. This could include: budget counseling for those who are not in debt; debt counseling for those who may need professional assistance digging out; housing counseling for pre-rental, pre-purchase, first-time homebuyer, reverse mortgage, and foreclosure prevention; and the mandated bankruptcy pre-filing counseling and pre-discharge education.

* What are the fees associated with the services provided? The agency should be forthcoming about fees, and no fee should be assessed prior to the service being provided. Be wary if the agency says their fees are voluntary. Any set-up fee or monthly fee should be reasonable, usually defined as $50 or less, with monthly fees in the $25 range. The agency should be willing to waive all fees in cases of true hardship.

* What delivery options are available to you for counseling? Does the agency offer in-person counseling? Counseling by phone? Internet counseling? Is the channel that's most appealing to you offered?

* Is the counselor assigned to you a Certified Consumer Credit Counselor? You want someone qualified assisting you with your critical financial decisions. NFCC certification means that the counselor has passed a rigorous battery of tests measuring their financial knowledge.

* Does the agency provide educational classes or workshops?
Are any of these tools offered online? Is there a fee to attend? The absence of any true education offered to the general public is a red flag.

* Will the agency work with all of your creditors?
Some agencies only work with creditors who agree to make a payment to them. A legitimate agency will take a holistic approach to solving your financial distress.

* Is there a minimum amount of debt required to be counseled?
True credit counseling agencies will work with you regardless of how large or how small your debt may be.

* What debt relief options are offered?
If the only tool is the Debt Management Plan (DMP), keep shopping. A DMP is a useful tool, and is often the appropriate resolution. However, each consumer's situation is different, thus the solution should be customized to fit their specific needs. A one-size-fits-all approach signals that you should continue your search.

* Are the counselors compensated for writing DMPs?
Any such incentive is not a part of a legitimate agency's pay to their counselors.

* How long will your counseling session last?
Don't be tempted by "drive-by" counseling. A counselor simply cannot do an adequate intake of your income, expenses and debts in a short amount of time. An initial session length of at least one-hour is standard.

* If you go on a Debt Management Plan, how soon after receipt of your monthly payment will it be disbursed to creditors?
The success of a DMP depends on timely, consistent payments to creditors.

* Will the full amount of your payment be disbursed to your creditors?
The full amount should go toward the repayment of your debts, with no portion going into the agency's pocket.

* How will your deposits be protected?
Ask for written evidence that the agency is bonded or insured to protect the consumer from fraud or the agency's own financial difficulties.

As a final step, check with the Better Business Bureau and your state's Attorney General to see if there are unresolved complaints about the provider you are considering. Anyone can file a complaint. What is relevant is how the agency resolved it.

Legitimate credit counseling agencies counsel and financially educate millions of consumers each year, making financial stability a reality in their lives. It all starts with selecting the right agency. Asking the above questions, and receiving the right answers, will ensure that your credit counseling experience is a positive one.

For general information on managing credit, you may wish to contact the Federal Trade Commission's (FTC) Consumer Response Center. The FTC offers tips on how to be a smart financial consumer, guidelines for getting rid of consumer debt, and information on your rights as a consumer.
You may also wish to view information on the Internal Revenue Service's (IRS) consumer alert on credit counseling organizations.


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