Consumer Credit Counseling

When Do You Need Credit Counseling?

• Are you spending more money than you make?
• Are you using your credit cards as an additional source of income instead of paying off the balances?
• Are you receiving calls from creditors because you're failing to make some or all of your required payments?
• Are you considering borrowing more money to pay on your current debts?
• Have you reached a point where you no longer know where to turn for relief?
• Are you considering filing for bankruptcy? Consumer credit counseling is now mandatory before filing, with very few exceptions.

If you've answered yes to even one of these questions, you are a candidate for consumer credit counseling. A good counselor can not only help you get your finances in order, they can teach you better money management techniques, enabling you to set a monthly budget according to your income and stick to it. They may even be able to show you how to save for future needs once your current debts are finally repaid.

How Consumer Credit Counseling Works

Step One

Gather up your entire financial portfolio in preparation for a visit to a credit counselor. You will need to bring copies of all your current debt statements, including credit cards, utilities, mortgage(s), auto loans and any other outstanding debts you may have. You will also need to bring your most current bank statement(s) and pay stubs from all sources of employment/income.

Step Two

The consumer credit counseling service you choose will assign a counselor who will review your financial situation with an eye toward helping you develop a plan to organize your finances more efficiently and repay your debts in a timely manner.

Step Three

The counseling service will contact your debtors to negotiate new repayment terms that may reduce or eliminate interest, penalties and late fees that have accrued. They will also request that all harassing phone calls be stopped immediately, which can bring tremendous relief and restore peace of mind.

Step Four

Once you sign an agreement with your counselor, you will be required to make a single monthly payment to the service, which will then distribute that money to your debtors according to the newly negotiated terms.

• Be sure to follow up on those payments and make sure they are being made on time. Even though your credit counseling service is supposed to manage this for you, if any payment goes in late, it is still your credit rating that will suffer any consequences. It pays to be pro-active in this situation.

What's the Cost?

Most consumer credit counseling services are provided free of charge, at least for the consultation, although a few companies will charge a small fee for this as well. If you choose to sign a service agreement to have the company manage your debt repayments, a small fee may also be figured into your debt payments to cover their time and effort.

Why are these services so inexpensive? The answer may surprise you. Many of the same companies you owe money actually pay credit counseling services a fee to help them recover as many outstanding debts as possible. It's a better alternative than having to write off debts, and even with the fees, these lenders often still manage to come out ahead.

There is a hidden cost for credit counseling that many consumers don't realize; it appears on your credit report and could serve as a warning signal to future companies you may want to transact with. Credit counseling is far better than having a bankruptcy appear on your record, but you are still better off trying to find your own solutions before resorting to this service.

Finding a Reputable Credit Counselor

The National Foundation for Consumer Credit Counseling is a very good resource to put you in touch with certified credit counselors in your area.

It's advisable to check out at least two different services and compare the kind of deals they are able to offer you before you sign an agreement with any credit counseling establishment. A quick check with your local Better Business Bureau may also prove beneficial.

In Conclusion

Resolving your debts through a consumer credit counseling service isn't painless. You will be expected to economize in order to meet your current financial obligations, but if you are successful, you will have repaid your debts, and learned new tools to help you manage your income more efficiently. That will help assure your financial security in years to come.

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