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There are several reasons you may want to consider credit counseling. If you're unable to create a workable budget you can stick to, if you're not good at dealing with creditors or want to look into a debt management plan (DMP) a credit counseling service may be able to help you.
In addition to the reasons listed above, if you're going to file bankruptcy (any chapter), you will be required to see a credit counselor first in accordance with the new bankruptcy laws. If you're filing Chapter 13 bankruptcy, you will be required to seek credit counseling both before and during your bankruptcy process.
The goal of a credit counselor is to help you get your finances in order. They can help you manage your money, create household budgets that your family can realistically stick to and offer free educational materials to help educate consumers about money management and debt.
If your debt problems are past the point of budgeting changes and you are unable to keep up with payments to your creditors, credit counselors can also help you enroll in a debt management plan (DMP). A DMP is along the same lines as debt consolidation, but different.
The DMP is organized and arranged by your credit counseling agency and does not require a loan. The credit counselor will create a repayment plan for your debts - sometimes they can even work with creditors to lower your interest rates or waive late fees - and manage the repayment.
This means that you will pay one bill to the credit counseling agency every month (one payment, as with a debt consolidation loan) and that they will then disburse that one payment to your various creditors (unlike debt consolidation, with a DMP your existing accounts are not paid off immediately).
A DMP can help simplify the process for you by allowing you to pay one bill, even though all of your accounts remain with the current creditors. You don't need to apply for a new loan or risk that another financial hardship could cost you whatever you put up for collateral to get that loan (in most cases, it is your house).
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A DMP plan can take up to four years to complete, but the likelihood is that the calls from creditors would stop as long as you made your payments to the credit counseling agency on time each and every month. Whether a DMP or debt consolidation is right for you is a decision you must make along with your credit counselor and/or attorney.
While there are a lot of great credit counseling agencies out there, be aware that there are some less than reputable companies. Be wary of any company that charges high monthly fees (or high pressure for voluntary contributions) to enroll in counseling or a DMP. In addition, any company should be willing to send you free information about their services without requiring personal information (account numbers, balances) from you first.
Another thing to remember when choosing a company is that a legitimate counseling service looking to help you will not try to enroll you in a DMP without taking a in depth look at your financial situation first and requiring you to learn more about budgeting and money management skills you need to stay out of their programs in the future. And make sure you never make any payments until you're sure your creditors will accept the terms of their program.
Most experts would recommend that you look for a non-profit credit counseling agency as they are the most likely to be concerned about your well being and not how much money you can put into their pockets. That said, check any agency out thoroughly - being non-profit doesn't automatically make them honest or good at what they do.
If you're pressed for time you may want to consider online credit counseling services as well.
Credit counseling can be a smart move for many people. By learning to better control your budget and your personal finances, you can avoid having to claim bankruptcy. And if you are past the point of no return, you are required by law to attend credit counseling before you can file for bankruptcy, so you might as well take advantage of what they have to offer.
Related Articles:
+ Tips for filing bankruptcy on your own
+ Finding alternatives to claiming chapter 7 or 13 bankruptcy
+ What is involved with filing bankruptcy online
+ Information you need to know about debt consolidation
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