Consumer credit counseling is an alternative to filing bankruptcy. It is professional counseling that provides you with financial education and debt counseling according to your situation.
Once you consult with a credit counselor, the counselor will assess your debt level and work out a payment plan based on your income. Some credit counselors can negotiate lower interest rates and set up a debt management plan with your creditors.
How Credit Counseling Works
The credit counselor analyzes your credit situation including number of accounts, balance, minimum payment, balance due, and any past due account. The counselor then considers your monthly income and bills. Using this information, the counselor puts together a debt management plan (DMP) for paying off your debts. The proposed plan is sent to each of your creditors for approval.
Once your creditors agree to the DMP proposed by your counselor, you begin making payments to the credit counseling agency. The credit counselor disburses payment to each of your creditors in accordance with the DMP. In most cases, your credit accounts are closed to future charges as long as you are on the DMP.
Costs
A lot of credit counseling agencies claim to be non-profit. Even if the credit counseling agency says it’s non-profit, that doesn’t mean the services provided to you are free. In many cases there’s some kind of fee involved. Some agencies use your first payment to cover their fees, while others deduct a flat amount from your monthly payment.
You should never pay a fee just to obtain information about the company and services offered.
Do You Need It?
A consumer credit counseling agency doesn’t have any rights or privileges that you don’t also have. Anything a credit counselor can do for you, you can do for yourself. Even so, there are many people who enjoy the convenience of the services provided by credit counselors.
Consumer credit counseling can help if you aren’t sure how to negotiate a payment plan with your creditors. Some credit counselors have experience in working with creditors, they are sometimes able to negotiate better payment terms than you could on your own.
If you don’t think you will be disciplined enough to distribute payment to your creditors each month, it’s usually better to work with a credit counselor. That way, you are responsible for making one monthly payment to cover your credit card bills. The credit counselor does the rest.
What Next?
Should you decide to pursue consumer credit counseling as a solution for your debts, it’s important to choose a reputable credit counselor that will help you get out of debt. Stay away from companies that aren’t clear about their services and fees.
