Credit Counseling

Some might debate whether we’re still in a recession, but even before the recession there were still millions of Americans that were in serious trouble with their credit card debt. With the recession, the unemployment rate and the housing crisis there are still a lot of consumer worried about the economic downturn. More now, than ever, the number of Americans that are suffering from extreme credit card debt is growing and a large number of that population is seeking professional help for their credit card problems.

There is currently $800 billion in credit card debt in the US, with the average household holding around $14k in credit card debt and the number growing with each year, the popularity of credit counseling has been rising simultaneously.

Credit card debt is a problem for a lot of folks and can get unmanageable when you find yourself missing payments, and the total balances start climbing past your annual income. For those of us that are really stressing out about our credit card debt, and befuddled about what to do with ourselves credit counseling might be a viable alternative to bankruptcy.

Before you join any program you should really weight out the pros and cons, that rule should be important when you’re dealing with anything financial.

Credit Counseling Pros:

· Education: In the 1950s credit counseling was first established as a way to spread “financial literacy” throughout the US. Credit counseling is still a very valuable educational resource for personal finance, and somebody who is deep in credit card debt is probably a personal finance misfit who has never had anybody speak to them in regards to things like debt, setting up a budget and credit cards. Good credit counseling revolves and focuses on educating the consumer and providing them with the tools, resources and information on how to avoid bankruptcy.

· Interest rates: If you choose to enter a debt management plan (DMP) than you will benefit from your credit counselor negotiating with your creditors lower interest rates for your credit cards.

· Harassment: Are you tired of harassing creditors calling you while you’re at home or trying to spend time with your family? Well if your credit counselor has done his job than those phone calls should most likely stop.

· Save Money: A good credit counselors is skilled at the art of negotiation and will negotiate lower interest rates for you, get credit card fees, and over the limit fees waived.

· Credit rating: In the long run getting rid of your debt, and paying off your credit cards in a timely fashion is going to eventually help your credit rating but even more important give you peace of mind.

Credit Counseling Cons:

· Monthly fees: Most credit counseling organizations are non profit, but that doesn’t mean a debt management plan isn’t going to cost you. Most DMPs will cost a consumer around $50 tops.

· Home buying: If you’re in credit counseling it will show up on your credit report and banks may have a hard time lending to a borrower that has supposed credit card problems. This is something to consider if you’re in the market for a home, but sometimes a credit counselor can take you off the program if you’re in the market for a home, temporarily, until you have closed on your homes.

· DMP: Some credit counseling organizations will take you off the debt management plan if you miss one payment, so you have to be cognizant and on top of your payments.

Credit counseling has helped many individuals out of debt, but that’s not to say that it comes without problems, getting out of debt takes discipline, hard work and sacrifice. You have to be committed to your personal finance growth if you want to become financially independent from debt.

Do you need debt consolidation credit counseling? If you are deep in debt and headed for personal bankruptcy you might need to consider credit counseling.

Debt consolidation credit counseling is an important undertaking. Avoiding bankruptcy and keeping your credit record intact are two keys to financial success. You also need to know how to distinguish a good credit counseling agency from a bad one. There are many good credit counseling agencies out there but some are bad apples. It is important to understand how credit counseling can effect your credit report. Also be aware of a key change to the bankruptcy laws that involve credit counseling.

What is Debt Consolidation Credit Counseling?

Debt consolidation credit counseling agencies provide a service to people who are in over their heads in debt. Credit counseling agencies provide counselors, education, and Debt Management Plans (DMP). A Debt Management Plan is a service where consumers send an agency a lump sum payment which is then distributed to creditors who have agreed to the plan. Creditors sometimes agree to lower interest rates, waive fees, and post updates to credit reports as well. The convenience of making one payment to a single credit counseling agency is also a plus. The problem with Debt Management Plans is they only address unsecured debt. Secured debts such as home loans or auto loans should be prioritized and paid first. You risk losing your home through foreclosure and your car through repossession if you fail to make your payments.

How to Find a Good Debt Consolidation Credit Counseling Agency

A good credit counseling agency is one that offers an in-person consulting in your local area. Services beyond Debt Management Plans including personalized education are also good options to expect. The National Foundation for Credit Counseling (NFCA) and the Association of Independent Consumer Credit Counseling Agencies (AICCCA) are the key industry groups for credit counseling agencies to be members of. Ideally you want a counselor who will give you personal attention and present you with all of your options. You don’t want to feel pressured into a bad decision.

Some Debt Consolidation Credit Counseling is a Scam

With consumer debt at an all time high and federal personal bankruptcy laws requiring credit counseling many aggressive agencies have opened up shop targeting unsuspecting consumers in need. Non-profit credit counseling status does guarantee legitimacy or trustworthiness. In many states non-profit status is a requirement for a debt consolidation credit counseling agency to do business. Another caveat is that some not-for-profit credit counseling agencies are closely aligned with for profit businesses. Some debt consolidation credit counseling agencies charge excessive fees and only push DMPs. Asking good questions and referring to credit counseling agencies on the NFCA and AICCCA lists will help you sort the wheat from the chaff.

How Debt Consolidation Credit Counseling May Effect Your Credit Report

When you enter into a Debt Management Plan creditors will often make updates to your credit report. These updates include “re-aging” accounts and removing delinquent payment references. A potential drawback is that since lending is subjective, lenders may consider the notes your creditors put on your report as a good or bad sign. A good sign would be that you took steps through credit counseling to take care of your debts. A perceived bad sign would be that you had so much debt that it became unmanageable and you may be a credit risk. In the long term this may effect your credit score.

Debt Consolidation Credit Counseling and Personal Bankruptcy

If you decide that personal bankruptcy is the best course of action for your situation, you need to be aware of a key change to the bankruptcy laws. Before you can file for bankruptcy under either Chapter 7 or Chapter 13 you need to know the law. Changes in the Federal bankruptcy laws brought about by the Bankruptcy Act of 2005 require folks to get credit counseling from a federally approved agency six months before they can take advantage of bankruptcy protection.