Credit Counseling

One can never forget the times when the money flows in like water, as if there was no end. Then there are times when the money just slips off unnoticed.

Those are the times when we ask others for help, favor & loans which at the end lead us to debt. You start living paycheck to paycheck; you get calls, texts and visits of debt collectors.You can’t plan out a workable budget, let alone save money for your retirement?The only option you can think of is to file for a bankruptcy. If this sounds familiar, and seems like your story retold, then before you go ahead with the plan, you might want to consider seeking the services of a credit counseling agency.

Credit counseling is a process in which consumers are offered education on how to avoid incurring debts that cannot be repaid. Credit counseling must take place before you file for bankruptcy; debtor education must take place after you file. This is achieved by establishing an effective Debt Management Plan (DMP).

A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. They are set up by credit counselors, usually to offer reduced payments, fees and interest rates to the client. Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in the DMP. It takes approximately 36-60 months to repay debts through a DMP. A DMP serves the dual role of helping you repay your debts while creditors receive the money owed to them.

When you seek help from credit counseling agency, they provide you with , professionally trained and certified credit counselor, who in turn contacts each of your creditors, and works out a plan where you repay your debts, in full, over a period of three to five years. The counselors often can negotiate a plan where your repayments are made with little or no interest, so you can repay your debts faster than when you would have repaid them on your own.

Its simple and easy, here is how it works:

When you contact the counseling center, these counselors will help you evaluate:

• Administrative help in accessing benefits, raising awareness (and championing enforcement) of regulations and in correctly filling out forms to apply for bankruptcy or debt restructuring arrangements;
• Mediation between debtor and creditor;
  
• Immediate financial support;
  
• Provide over-indebted citizens with a perspective to regain control over their financial situation, acting as a listening ear and a helping hand.
• Provide you with a detailed review of your income, assets and expenses.
  
• Provide personalized options based on your goals, which may include social service referrals, educational materials and resources and a Debt Management Plan.
  
• If the Debt Management Plan is your best option we will provide you with the complete program and details.

A typical counseling session should last about 60 to 90 minutes, and can take place in person, on the phone, or online. The counseling organization is required to provide the counseling free of charge for those consumers who cannot afford to pay. If you cannot afford to pay a fee for credit counseling, you should request a fee waiver from the counseling organization before the session begins. Otherwise, you may be charged a fee for the counseling, which will generally, is about $50, depending on where you live, the types of services you receive, and other factors. The counseling organization is required to discuss any fees with you before starting the counseling session.

There are several advantages when you join a DMP

1) After joining a DMP, the creditors will close the customer's accounts and restrict the accounts to future charges. The most common benefit of a DMP by most agencies is the consolidation of multiple monthly payments into one monthly payment, which is usually less than the sum of the individual payments previously paid by the customer. This is because credit cards banks will usually accept a lower monthly payment from a customer in a DMP than if the customer were paying the account on their own. Some agencies claim that payments can be cut by 50%, although a reduction of 10-20% is more common.

2) DMP reduces the interest rates charged by creditors. A customer with a defaulted credit card account will often be paying an interest rate approaching 30%. Upon joining a DMP, credit card banks sometimes lower the annual percentage rates charges to 5-10%, and a few eliminate interest altogether. This reduction in interest help the customers become debt free in periods of 3–6 years, rather than the 20+ years, i.e normally it would have had taken one to pay off a large amount of debt at high interest rates.

3) Another advantage of a DMP is the process of bringing wrong accounts current. This is often called "re-aging" or "curing" an account. This usually occurs after making a series of on-time payments through the debt management program as a show of good faith and commitment to completion of the program.

For example, a client with an account with a monthly payment of $50 which has not been paid in two months might be considered by the creditor to be 60 days past due. After joining the DMP and making three consecutive monthly payments, the creditor could re-age the account to reflect a current status. It gives a fresh start and an opportunity for the client to begin building a positive credit history. Like all critical credit information, the passage of time will lessen the impact of the negative marks when credit scores are calculated. However, re-aging an account will reset the clock on the statute of limitation i.e in many countries; a credit card debt expires to be worthless in 6 years. So by re-aging an account, debt collectors get more time to sue you.

While in private, profit credit counseling also exist. In European countries, government, consumer associations or relief organizations provide such services on the ground of social service. Some of the services provided by these agencies are,

Debt Consolidation:
The credit counseling agency can help you consolidate your debts into one, easy payment. The debt management program can help you get out of credit card debt without hurting your credit rating.

Credit Counseling:
The credit counselors will review your budget and advise you the best way to manage your personal finances and pay off your credit card debts.

Financial Education:
The credit counseling agency offers many resources on money management, household budgeting and issues that affect your credit rating.

Housing Counseling:
As a HUD certified housing counseling agency, we're able to help people manage their mortgage, foreclosure, reverse mortgage and/or purchase of a home.

So next time when you are in too much of debt, have a problem repaying and are thinking of going ahead with filing for that bankruptcy, give a visit to a credit counseling agency and let them handle your problems.

Debt Consolidation | Credit Counseling | Financial Education | Housing Counseling | Debt management plan | DMP