What Is Credit Counseling?
The credit counseling process involves experts guiding consumers who are in debt out of debt. and educates them on how to stay out of it. But more than just educating consumers, credit counseling often involves negotiating with creditors to establish a debt management plan for a client to follow, tailored to them and their situation. The plan the counselor establishes – properly followed by the debtor – may help the consumer repay his or her debt by working out a repayment plan with the creditor that includes reduced payments. They also typically eliminate late fees and lower interest rates on balances. These plans also typically adhere to guidelines established with the input of and by prearrangement with credit card companies.
A Brief History
The first credit counseling agencies were organized in 1951 in the United States of America when credit card companies created The National Foundation for Credit Counseling. Some 40 years later in 1993, the Association of Independent Consumer Credit Counseling Agencies was founded in order to improve the industry-wide standards for ethical behavior. A third major trade organization involved with controlling the credit counseling industry is also its largest, the American Association of Debt Management Organizations.
With the dramatic growth in consumer debt, there has been an increase in the number of firms offering consumer credit counseling. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 required credit counseling for consumer debtors filing for Bankruptcy in the United States. Many offer their services through the Internet.
However, not all credit counseling agencies belong to these organizations, and they are not compelled to join by law. So, not all companies claiming to be legitimate are. There are some who claim the title, but are really just out to exploit those in debt for profit. But, today in American there are over 1,000 credit legitimate counseling organizations at work helping consumers get out of debt – and hopefully stay out.
The Key Benefit of Credit Counseling
At the heart if the plan from a consumer’s perspective is that credit counseling helps consumers pay off their debt through reduced interest rates and payments. This is not all credit counselors do, however. At the outset, credit counseling catered to those who’d fallen behind on their payments. While the majority are still from this boat, credit counseling agencies regularly help those who are faced with high interest rates.
A Downside to Credit Counseling
For those facing a mountain of debt that is crushing them and their potential for a healthy financial future, credit counseling can be a real godsend. But there is a drawback, and that is that agreements arranged by credit counselors on behalf of consumers will most likely prevent that consumer from using credit cards or from applying for more credit cards. But in the end, since credit was in all likelihood mismanaged by the consumers in question, it isn’t a matter of restriction, but for the consumer’s own protection.