Making the Decision to Use Credit Counseling
When your debt gets so out of hand that you don’t know where to turn then you might consider seeking the services of a reputable credit counseling organization. This decision is not an easy one because there are usually so many different organizations offering the service plus there have been a few credit counseling organizations reported negatively in the news. But credit counseling may be just what you need to get back on track with their financial advice and help in budgeting. Here are a few points to consider when making your decision to use credit counseling:
Credit counseling is not the same thing as a debt management plan. Credit counseling is financial advice from professionals who are qualified to offer it. Advice includes suggestions for finding additional income sources and setting up a budget after studying your individual financial situation. Credit counseling organizations oftentimes have debt management programs where they negotiate better payment terms with your creditors and you pay the agency one payment each month. The organization then takes your payment and pays each of your creditors. Debt management plans of course have fees associated with them because it requires many more resources on the part of the credit counseling agency.
You don’t necessarily need to have a job in order to use credit counseling. However you will need a job if you are enrolling in a debt management program offered by the credit counseling company because it will call for regular payments. Many get into their debt bind and seek relief because they lost a good paying job and have been unemployed or underemployed for several months. What typically happens is during unemployment, credit cards are used for buying food and paying for household expenses. Using credit cards like income can only spell disaster down the road. Some credit counseling organizations even offer free or nominally-priced financial counseling to help you with advice for getting through a prolonged period of unemployment.
It can be embarrassing but in the end you will be glad you did something. Probably the hardest part is gathering all the information about your current debt situation and presenting it to the credit counselor. However consider that the embarrassment if any is short-lived and you probably only have to expose your personal debt situation with a limited number of people. With a bankruptcy, you have to expose all information as to your financial status with at least your lawyer, the creditors and/or their legal representatives, and the judge. Compared to that, credit counseling suddenly looks a lot less embarrassing.
Credit counseling is definitely required under the recent changes to the bankruptcy laws. The Bankruptcy Reform Act of 2005 requires that you successfully complete a financial management course from a qualified credit counseling agency prior to filing for bankruptcy if that is the route you are taking for debt relief. So in this case, your decision to use credit counseling is driven by the more significant bankruptcy decision. The intent of this requirement of the new bankruptcy law is so that people will learn ways to avoid getting into debt problems in the future.
You may still have to file bankruptcy.You should avoid bankruptcy but unfortunately things may get so bad that you are left with no other choice. Wouldn’t you like to know that you tried everything including credit counseling before you made that decision?
Why the bad reputation of credit counseling? It’s like any other good idea that was later misused by a few others. There are credit counseling organizations that are not reputable and are out to drain what little money you do have from you. It is for this reason that you must shop and compare very carefully before you make your choice on which agency to use. Reputable credit counseling organizations must be licensed to provide this service in your state.