Category: 

What is Credit Counseling?

Article Details
  • Written By: Michael Pollick
  • Edited By: Lindsay D.
  • Last Modified Date: 19 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
Snake charmers get snakes to “dance” because of the movement of their flute-like instruments, not their music.  more...

December 4 ,  1945 :  The United States Senate approved of US participation in the United Nations.  more...

Credit counseling has become an increasingly popular alternative to the legal procedure known as bankruptcy. As federal guidelines for filing bankruptcy continue to tighten, more and more credit counseling services are setting up shop to help consumers manage their debts and fend off aggressive collection agencies. These agencies are designed to be non-profit, which means the majority of a client's payments must be earmarked for debt repayment. Credit counseling organizations can legally collect a small fee for administrative costs, but cannot profit from collection fees or interest charges.

In a typical credit counseling situation, an individual may find that his or her financial obligations are not being met with income alone. He or she may only be making minimal payments on credit card balances and falling behind on other debts. Some of their creditors may have already started collection proceedings or other legal action. Declaring bankruptcy in an effort to reorganize his or her debts may seem like the only possible solution. But bankruptcy proceedings stay on a person's credit record for at least seven to ten years. Lawyers who specialize in bankruptcy filings are entitled to a fee for their legal advice. Federal judges assess the debtor's ability to pay and may require a substantial amount of monthly income be held by a trustee.

Ad

This is where a non-profit credit counseling service could provide a better alternative. A debtor can bring all pertinent documentation of his or her outstanding debts to a trained credit counselor. This advisor often works as a liaison between the credit card companies and their customers. Once the credit counselor has added all of the outstanding balances and monthly payment obligations together, he or she will calculate a single payment to the credit counseling service which will address all of the creditors. Quite often the creditors are willing to accept these repayment terms in order to avoid the expense and questionable results of traditional collection methods.

Credit counseling does have some negative aspects, however. Credit cards may have to be completely surrendered in exchange for lenient repayment terms. The use of a credit counseling service may be just as damaging to a consumer's credit rating as a Chapter 13 bankruptcy filing. Some unscrupulous agencies are actually non-profit extensions of 'for profit' enterprises. The monies collected by the non-profit entity may be funneled into the 'for profit' accounts and not the actual debts. Anyone seeking credit counseling advice should check out the agency's Better Business Bureau file and ask the advisor direct questions during the initial consultation.

Ad

You might also Like

Recommended

Discuss this Article

surfNturf
Post 3

@SauteePan - I know that there are credit counseling companies out there that help you settle your credit card balances but can’t you do that yourself?

I recently heard a financial advisor on a talk show discuss this very topic. He said that you can settle with the credit card companies for pennies on the dollar.

He said that as long as you get this in writing and do not give them access to your bank account you should be able to settle these accounts yourself and not pay a credit counseling company any money.

I just wondered if that was true or not. He did say that your accounts had to be in collection status.

SauteePan
Post 2

@Anon8487 - I am not really sure. I think that it is best to contact the credit counseling company that you originally dealt with as well as the credit reporting agency in which you saw that listing.

I don’t know how long something like that typically stays on your report. I do hope that the nonprofit credit counseling helps you to reestablish your credit rating again.

anon8487
Post 1

I recently completed credit counseling and all of my credit bills are paid off. However, the credit reports still say something like, "Account managed by Credit Counselor". How do I remove these account status items since the accounts are no longer managed by a credit counselor?

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email