credit counseling

Credit counseling offers financial solutions to people who are deeply in debt. When consumers have racked up more bills than they can hope to pay and are in a pattern of skipping payments, making late payments, and being charged high fees for these actions, choosing to take an extreme measure such as credit counseling may be necessary and wise. Credit counseling allows you to get various types of debt management help from professionals, usually for a fee.

• Credit counseling takes place when a consumer contacts a credit counseling agency for advice and help to get out of debt. These are third parties who act as mediators between consumers and the creditor to which the consumer owes the money.
• Rather than dealing with their creditors directly, consumers rely on credit counseling agencies to deal with the lenders and reach repayment terms acceptable to both parties.
• The agencies work with the lenders in attempts to come up with interest rates and monthly payments that are lower than what their clients were paying before.
• Lending agencies may be more likely to agree to these lower terms when working with counseling agencies than with borrowers directly because the fact that a borrower is working with a counseling agency means that a) the borrower is serious about making payments; and b) that the lender will see at least some of their money rather than none if it.
• Once the repayment terms have been reached, clients make one payment to the credit counseling agency, which then pays the various lenders.
• Counseling agencies can be not-for-profit or for-profit organizations. Non-profit agencies are recommended because they are more likely to be honest and have the consumer’s best interest in mind. Some agencies offer services for free, while others charge up-front fees, which may be difficult for borrowers already deep in debt to scrape together.

Things to Know About Credit Counseling

Interestingly enough, credit counseling agencies are funded in part by the credit card companies they help lenders repay. Initially this funding relationship seems odd, but it makes sense when you realize that it is advantageous to the creditors to be members of counseling agency networks, because those agencies help the creditors regain at least some of the money they loaned out.

This system has been criticized because of alleged conflicts of interest; it has been questioned whose best interest counseling agencies have in mind – the creditor or the borrower.

The National Foundation for Credit Counseling is a non-profit organization that employs Certified Consumer Credit Counselors at member agencies across the country. These counselors provide free and low-cost counseling that will help you evaluate your current situation, identify your spending, determine if you make enough money to cover your necessary living expenses, create a budget, and make a plan of action to deal with your debt.