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What is Consumer Credit Counseling?

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  • Written By: M.C. Huguelet
  • Edited By: Heather Bailey
  • Last Modified Date: 21 September 2016
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Consumer credit counseling is a consultation service which allows those in debt to obtain financial advice from debt management experts. A credit counselor usually evaluates an indebted individual’s financial situation and educates him about possible options for improving that situation. Seeking consumer credit counseling should not significantly impair one’s credit record, although it may discourage individual lenders from granting credit. Before enlisting a consumer credit counseling firm’s services, the indebted individual should ensure that that firm is legitimate.

Sometimes, debt arising from credit card use, auto loans, mortgages, student loans, and a number of other possible sources can build up to a level that is difficult to manage. Consumer credit counseling is a consultation service which provides financial advice to those with unmanageable levels of debt. By working with a debt management expert, an indebted individual can create a plan to address his debt.

Generally, consumer credit counseling begins with an introductory session in which the indebted individual presents his debt counselor with documents such as creditor statements and proof of income. The debt counselor analyzes these documents to fully understand the indebted individual’s financial situation. Based on that financial situation, the counselor then educates the indebted individual about possible options for managing his debt.

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In cases where it is possible for the indebted individual to manage his debt alone, he may need only a single consumer credit counseling session, during which his counselor will help him establish a budget and debt payment goals. If the individual has a very high level of debt as compared to his income, he may need to take more drastic measures to become debt-free. His credit counselor may recommend filing for bankruptcy or creating a debt management plan (DMP). In a DMP, a credit counseling agency takes over management of an individual’s debts, sometimes negotiating with creditors to secure reduced payments or lowered interest rates. Instead of paying his creditors individually, the indebted individual then makes a single monthly payment to his credit counseling agency.

Many people worry that seeking consumer credit counseling will impair their credit record. While the fact that one has sought counseling will usually be noted on one’s credit report for several years, in most countries it does not directly impact credit scores. It should be noted, however, that individual lenders may choose to refuse an application for credit to those who have sought credit counseling in the past.

Before enlisting a consumer credit counseling firm’s services, it is important to ensure that the counseling firm is legitimate. In most countries, legitimate firms provide their services free of charge or charge only a small fee. Many countries have national agencies for debt management. Legitimate counseling firms are usually registered with their nation’s debt management agency.

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