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"Credit Counseling "

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What is credit counseling?

How do you find a reputable credit counseling service?

Credit Counseling FAQ.

Is credit counseling right for you?

What is credit counseling?

     Credit counseling is a term used to define a service that attempts to help individuals eliminate, or regain control of, their debt. When someone enrolls in a credit counseling program, they are giving someone else permission to handle the disbursements of bill payments and negotiate with their creditors. There are both good and bad points to credit counseling, but it is now required of anyone who files for bankruptcy.

     Credit counseling involves a counselor taking an assessment of an individual’s financial situation. The debtor will be required to provide a list of their current debt, minimum payments, current interest rates and balance. In addition, they will be asked to provide a list of secured debt, such as a mortgage or auto loan, along with expenses pertaining to entertainment and other miscellaneous costs. At that time, the counselor will attempt to work out a budget that the debtor can handle while paying their credit cards at a lower rate. Because credit counselors regularly work with creditors, they already know how low of a minimum payment and interest rates a creditor will accept. The counselor will prepare the budget, ask the debtor to sign it and submit the proposal to each of the creditor’s listed.

     It’s important to understand that credit counseling is not the same thing as a debt consolidation loan. A credit counselor does not offer any type of loan. Instead, they accept payments directly from the debtor and then disburse them to the creditors as agreed. When an individual enrolls in credit counseling, they are asking their creditors to accept a lower minimum payment and lessen their interest rates. This will result in smaller payments and a fast payoff, which will help the debtor in becoming debt free. Under normal circumstances, it can take anywhere from 15-30 years to pay off a credit card. With credit counseling, however, that time is hopefully lessened.

     A legitimate credit counseling service will be classified as a non-profit organization and will not charge excessive fees in exchange for their service. Even after being enrolled in credit counseling, individuals are often sued by their creditors for non-payment. Why? Because credit counselors claim that it takes up to three months of consecutive payments for the creditor to accept the enrollment if they even do. Most credit counselors will tell you that they cannot make any guarantees as to whether or not any creditor(s) will even accept the proposal.

     When enrolling in a credit counseling program, it is best to read the agreement carefully before signing. Your contract should indicate that you can drop out of the program at any time and for any reason without any obligation or further payments being due. Additionally, it should outline any/all fees associated with enrollment and clearly outline the responsibilities of the credit counseling agency.

     The information in this article is designed to be used for reference purposes only. It should not be used as, in place of or in conjunction with professional legal advice surrounding credit counseling services. If you have questions surrounding the legality or use of credit counseling, consult a local attorney or the FTC for a list of approved counselors in your area.