Credit Counseling

It Should Be An Educational Experience, Not Just A Bill Paying Service

Credit counseling is an umbrella term for a number of different programs. It can vary from a very simple plan to repay your debts, to completely turning your financial life over to someone else, hoping they can fix it.

You need to be comfortable with the program and it needs to help you reach your goal of being debt free. With so many to choose from, it is important to understand some of the differences. Don't be afraid to ask questions.

You have decided you are not disciplined enough to do this on your own. You can’t do a budget, or have a hard time sticking to it. Bills are stacking up and you have no clue how to work out a repayment plan with your creditors. You are feeling the squeeze. So let’s see how you can be helped.

 Education A Must.

If a company is truly a credit counseling organization they should offer help and advice on managing your money and debts. Education should be part of their program. They should be able to help you develop a budget, and provide educational materials and  even workshops. One thing to remember...  in the debt industry not everything is as it seems.

For example, some organizations who may offer credit counseling are just a front for some type of debt consolidation. They have as their best (and very often only) option a debt consolidation loan. Now, there is nothing bad about a debt consolidation loan by itself. It just needs to be the right  solution for you. For some credit organizations it seems to be the answer for everyone.

"You Can’t Help Me?”

If you are beyond the help of a credit counseling service you may need to enroll in a debt management plan. Be aware these programs are not for everyone. Only if you have too much debt or are unable to repay your obligations should you consider one of these programs. Your debt counselor should be able to advise you.

Here’s how they work... The plan managers contact all of your unsecured creditors, and in your behalf works out a payment schedule. At this point all or some of your creditors may agree to lower interest rate and even eliminate certain (usually late and over limit) fees. You do need to check with your creditors to be certain you know exactly to what they have agreed. <b> You may be turning your financial life over to someone else, but you are still responsible for it. </b>

The debt plan has you deposit money each month with the counseling organization. They in turn use this money to pay your debt(unsecured). They follow the payment plans previously worked out with your creditors. The plan will require you to make <b> regular and timely </b> payments. The length of the plan depends on the amount of your debt and your ability to make payments. It should not go much beyond 4 or 5 years.

 “Anything else?”

The other part of most plans is you agree to not apply for or use any additional credit until you have finished making all of your payments. Also you can expect no use of any credit from one of your included creditors. They are not going to further extend you credit when you are having difficulty paying what you already owe. You will essentially be paying for two lifestyles; the one you are now living...and the one you had.

Lastly, you need to be aware that while most credit counseling organizations do not report to the major credit bureaus, your creditors may report you as participating in one of these plans. However, this is better than being reported for late or missed payments and certainly better than filing for any type of bankruptcy. So just bite the bullet until you get out of debt which in time will improve your credit rating.

According to the Federal Trade Commission you should watch out for these warning signs when dealing with any credit counseling organization:

• Charges high up-front or monthly fees for enrolling in credit counseling or a debt management program.
• Pressure you to make “voluntary contributions,” another name for fees.
• Won’t send you free information about the services they provide without requiring you to provide personal financial information, such as credit card numbers and balances.
• Try to enroll you in a debt management program without spending time reviewing your financial situation.
• Offer to enroll you in debt management plan without teaching you budgeting and money management skills.
• Demand that you make payments into a debt management program before your creditors have accepted you into the program.