When to Consider Consumer Credit Counseling

If you are struggling each month to make ends meet and find yourself sinking deeper and deeper into debt, consumer credit counseling may be a possible alternative to filing for bankruptcy.

Everyone’s financial situation is different. An option which might work for one person may not be a good idea for someone else. No matter which remedy for debt relief you decide to choose, you need to know all the facts so that you can make the best decision.

You will need to make a list of all your outstanding debt and come up with an actual dollar amount of what you owe. Also, calculate your total income from all sources. You will need this information regardless of whether you seek credit counseling, file for bankruptcy, or work with your creditors yourself.

Consumer credit counseling is a professional service which provides struggling consumers with financial education and specific debt counseling. Reputable agencies offer a wide variety of services, many of which are free. Counselors can give you smart money management advice and also teach you how to prepare a budget- all things that you need to know if you are to succeed in getting out of debt and staying that way in the future.

Remember that a credit counseling agency has no special privileges or rights when helping you with your debts. Most of the services they provide can just as easily be done by you. You can call each of your creditors directly and try to negotiate a repayment schedule or attempt to settle for a lesser amount- which is exactly what a credit counselor will do. On the plus side, they do have experience dealing with creditors so if you feel more comfortable letting an agency do this for you, then consider using a counseling service.

If a credit counseling agency will not send you free information about their organization before meeting with you, this should be a warning sign to look elsewhere. Contact your local Better Business Bureau or consumer protection agency. They should have a listing of legitimate agencies.

Once you have chosen a specific counseling agency, make a list of important questions to ask on your initial visit. Some of these might be:

  1. Do you provide free information? Background information about the company or purely educational materials should be offered free of charge.
  2. Can you teach me to avoid financial mistakes in the future so that I don’t have to go through this process again? It’s important that your counselor gives you clear, sound advice on how to better manage your money. If you don’t learn better spending habits and how to budget your income, you will likely end up in the same financial mess once again.
  3. What are the fees for your services? You need to know exactly how much you will be charged for what they provide. Your goal is to reduce your debt, not add to it.
  4. What services do you offer? An agency should provide different financial counseling programs to its customers. You want to learn how to prepare a budget- make sure they offer this. How about classes or workshops focused on smart money management? These can help you avoid the same mistakes with money that are overwhelming you now. Be wary of companies that only offer a debt management plan. They simply charge you fees to pay your creditors.

Ask yourself if you can become disciplined in handling financial matters without the assistance of a credit counselor. A good counselor can help you stay on track and achieve your financial goals. The fact that you are considering seeing a credit counselor already indicates that you are having financial problems. You want to learn all you can about getting on solid ground, money-wise, and staying there. A credit counseling service can help you do just that.

You may also be considering using a debt management plan (DMP) to pay off your outstanding debts. The credit counselor will go over your financial situation, including all the bills you owe, and make note of the balance, minimum payment due, and any past due amounts. Then your monthly income is considered. The proposed payoff plan (normally a certain percentage of each account added together) is sent to all of your creditors for approval.

If the creditors all agree to the proposal, you begin making your payments to the actual credit counseling agency. The agency pays your creditors directly. It’s important to remember that the credit counseling agency will charge you a fee for this service. Also, all of your accounts are usually closed under this plan. Your credit score will be negatively affected when choosing a debt management plan but it may have suffered already if you have fallen seriously behind with your payments. These are things you should consider before taking this important step.

You may be overwhelmed and stressed from dealing with financial difficulties and desperately want to find a way to relieve your debt and start on the path to financial freedom. If you decide a credit counseling agency is the way for you to do this, make sure that you use a reputable company who shares your same goals. Investigate thoroughly before signing any agreement. The last thing you want to do is tie yourself to a scam which can put you into an even deeper financial hole.