Before filing Bankruptcy, many people consider Credit Counseling. There are a number of Choices available for those considering counseling, some choices that are good and some that are not advisable.
Credit Counseling Agencies offer a range of services from basic budget counseling to educational courses on finances to debt repayment plans. The Credit Counseling Agencies are funded in a number of ways. If you agree to participate in a repayment plan, the scheduled monthly payment made by you will include a fee (usually about 5%) retained out of each payment made to the Credit Counseling Agency. In addition to this, the Credit Counseling Agency may also receive a return of a small portion of the money paid to your creditors under the repayment plan. These are the two main ways in which Credit Counseling Agencies are funded.
What type of debt will they help you with? Most credit counseling agencies will help you with credit card debt. Some agencies will also help you to repay other types of unsecured debt, including medical bills and personal loans.
If you qualify for, and can afford to make payments, your credit counseling agency will set up a debt management plan. In order to determine the amount to be paid by you monthly, you will have to complete a financial statement showing that, after paying your regular household expenses, there is some money left over for the debt management plan. The fact that you are repaying your debt through a Credit Counseling Agency may show up on your Credit Report, so be aware of this possibility. Remember that the mere fact that the debt counseling plan has appeared on your Credit report may not adverse by affect your credit score. The possible effect varies significantly depending on your current credit situation.
If you are considering a debt management plan, if possible:
- Deal with a local agency;
- Check out all fees before signing any contracts;
- Make sure the agency protects your privacy;
- Find out exactly (a) which of your creditors will be repaid through the plan (b) the full amount that will be paid to each creditors and whether the creditor card (or debt) balance or interest rate will be lowered under the terms of the plan, and c) how long you will make payments under the terms of the plan.
Most reputable companies are non-profit agencies, and many are approved for debt counseling by the Office of the United States Trustee. Note, though, that this non-profit status and the approvals of the U.S. Trustee's Office are not guarantees of high quality services. Discuss your situation with the agency you have chosen before taking advantage of this payment plan.
