Why Would I Need Credit Counseling

What is Credit Counseling?

Credit counseling is a process that incorporates educational courses to consumers regarding appropriate credit card use. The purpose of credit counseling organizations is to inform consumers as to how to avoid credit card debt.

Credit cards offer consumers an expedited purchasing process. Available credit liens also enable an individual to purchase items with a lack of immediate financial commitment. That being said, credit cards, when used irresponsibly, can create immense problems for their holders.

With that in mind, the primary goal of credit counseling courses or organizations is to establish an effective debt management plan and budget. The creation of a conservative and long-term budget will enable an individual to properly extend themselves in regards to their debt to credit ratio.

Process of Credit Counseling

Credit counseling involves a negotiation process with creditors in order to establish the previously-mentioned debt management plan. An effective debt management plan will help the borrower repay his or her amount owed through the establishment of a repayment plan with their underlying creditor.

A debt management plan is established by credit counselors to offer the borrower reduced payments, interest rates and fees that were originally placed in their credit card agreement. All credit counseling organizations refer to these terms dictated by the underlying creditor to determine interest reductions and payments offered to the consumers in a debt management plan.

Should I hire a Credit Counseling Agency?

A consumer credit counseling service will attempt to make debt manageable for a consumer, while ultimately keeping these individuals out of bankruptcy. Consumer credit counseling services operate under tight regulations due to past discrepancies, where such agencies further crippled consumers as a result of hefty service fees.

That being said, if you or a loved one is facing mounting debts, it is recommended that you seek a credit counseling service to renegotiate your payment obligations with your respective lenders to lower your monthly rates through consolidation and to offer information and knowledge to prevent a similar situation from occurring in the future.

A credit counseling service will enable the individual in debt to avoid bankruptcy and to diminish their debts. The credit counseling industry will achieve these goals without the constant harassment of creditors demanding repayment. When a debtor agrees to operate under the terms of a credit counseling service they contact the agent or representative of the credit counseling service and not the individual in debt.

Types of Credit Counseling Services

A number of practices or educational services can be grouped within the broad field of credit counseling. However, the actual organizations which promote and establish debt management plans will operate under a non-profit or profit-based business model. These organizations typically have existing relationships with credit card companies or financial lenders.

The benefit of operating with a not-for-profit credit counseling service is found in decreased fees and the fact that creditors are more willing to offer lower interest rates through a non-profit intermediary. This characteristic will, of course, fluctuate on a case-by-case basis, but is essential to evaluate consumer credit agencies based on the fees and rates they charge. It is highly recommended that you look for a consumer credit agency that possesses an excellent rating with the Better Business Bureau.

NEXT: The Importance of Credit Card Consolidation