The goal of consumer credit counseling, also called credit debt management services, is to show consumers how to pay down debt and rebuild credit. Many types of credit counseling services are non-profit organizations and charge a modest fee for their services.
Three Goals Of Credit Counseling
First Goal: Get a clear picture of the debtor’s financial situation
A major benefit to consumer counseling is that it helps the debtor clarify the nature and extent of their debts and the financial options available to them.
The first step is creating a written document that lists all the debts and creditors and payment history and determines if they are secured or unsecured.
Second Goal: Organize and draft a debt management plan
Most consumer credit counselors are trained, certified, and experienced in the field of credit and debt management. They are also trained in budgeting income and expenses, which is necessary to develop a successful debt management plan for their client.
A debt management plan is essential in organizing and managing your current and anticipated financial obligations through budget management planning. From your debt management plan, you will determine which options you should be considering.
Carefully considering your options should be based on the size of your current debt within the context of your debt management plan, as well as your present and anticipated future income goals. Helping you make this determination is the third and final goal of budget management planning.
Third Goal: Consider all your present and future options
One option is to consider debt consolidation, which in most cases, extends your repayment term under a new loan. The downside is that you have not gotten rid of your debt but have instead extended the same debt for a lower monthly payment. Unfortunately, a high percentage of people who choose debt consolidation end up defaulting on the new loan and eventually filing for bankruptcy.
Under certain circumstances, bankruptcy is viable and should be considered carefully. Credit reporting agencies focus on scoring you based on how promptly you pay your bills and whether you have defaulted on any of your creditors.
Your Credit History
Credit agencies score consumers on the amount of income they declare compared to the amount of debt they carry and whether they have any public records of legal judgments, liens, foreclosures, car loan defaults, and car repossessions.
Suppose your primary concern is your credit rating. If so, consider that if you have been a late payer on your debts or defaulted on your debt, your credit score will be of no assistance to you.
Your credit record has already been scarred, making getting new credit very unlikely for the next three to five years. This assumes you can demonstrate a good repayment history over the next three to five years.
Considering The Bankruptcy Option
In contrast, Chapter 7 Bankruptcy stays on your credit record for ten years. However, this needs to be compared to how long reportable debt, such as a loan default, will remain on your credit record. The answer is about seven years. What does this mean?
It means you can continue to pay your old debt on extended repayment plans and still have an adverse credit record. Or you could stop paying on your existing debt by filing Chapter 7 bankruptcy, have your debt discharged permanently, and have a fresh start, which is the stated purpose of the bankruptcy laws.
The above considerations may determine your financial future. Take your time before deciding on any single course of action. Consult an experienced financial advisor before making a major decision.
Being a Careful Consumer of Credit Services
Before retaining a consumer credit counseling or debt settlement service, make sure you first check their reputation and history of business practices. We strongly suggest you check their record with both the Better Business Bureau and the Department of Justice (DOJ).
The DOJ maintains a list of all approved and credentialed consumer credit services by state.
Locating A Credit Counseling Service
If you have questions or require additional information about your specific financial needs we advise you to consult with a verified DOJ-approved credit counseling service about your specific issues.
