How Can A Credit Counselors Help Me?

How did credit counseling start?

Credit counseling(in the UK it is referred to as "debt counseling") was first established back in the 1950's by a group of creditors that formed the National Foundation of Credit Counseling (NFCC) in 1951. Their primary goal was to educate the American consumer on how to avoid bankruptcy and to promote financial literacy.

There are currently around 300 credit counselor organizations in the US, and the credit counseling industry gained some traction with the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005which required all individuals filing bankruptcy to seek credit counseling 180 days prior to filing chapter 7 or 13.

What can I expect from a credit counselor?

The number one objective for a credit counselor is to make you completely aware of your financial situation. Many credit counselors liken it to a financial education, so you can be cognizant financial situation hopefully giving you a birds eye view of your entire debt . Another great benefit of a credit counselor is he can also negotiate with your creditors and obtain a better interest rate for your credit cards, which translates into less debt .

The second objective is to enroll you in a debt management plan. The DMPis an instrument in which your credit counselor and you can negotiate better terms with your creditors. Once you're enrolled in a DMP, on average your debt can be lowered by 20% to 50%. You also will start paying the credit counseling agency, and the credit counseling agency will begin to disperse funds directly to your creditors.

Debt Settlement vs Credit Counseling

There are stark differences between credit counseling and debt settlement organizations. Unfortunately there is a lot of confusion associated with the two because many debt settlement organizations will tout themselves as credit counseling when in truth the two are very different.

Debt settlement is basically a last resort for those about to file bankruptcy, it's a hail Mary pass, which rarely works because there are creditors like Capitol One who refuse to work with debt settlement organizations.

With debt settlement you stop making payments to your creditors and begin making what you would pay to your debt settlement organization. The goal is to stockpile your funds for a lump sum payment to settle your debt. What they don't tell you is your creditor can turn around and sue you if you stop making your payments.

Red Flags for Credit Counseling Scams

Besides making sure that the credit counseling agency is not a debt settlement organization there are several things that one could categorize as proper due diligence when scouting for a good credit counseling agency.

• Ask for refrences/testimonials./li>
• Make sure they are a member of the BBB, and have a solid rating.
• If it sounds to good to be true...well, you know the saying.
• Look for reviews online.
• Find a non-profit credit counseling agnecy.
• Make sure they have give full disclosure on their fees and service charges.

Unfortunately the debt solutions industry are chock full of snake oil salesmen and con artists so make sure you find reputable credit counselors who have been in the industry for some time, and have proper references.