Getting Help: The Best Things About Credit Counseling
Although the image of the chronic debtor is typically someone who spends extravagantly and cannot distinguish needs from wants, it is not necessarily true. Sometimes even fiscally prudent people cannot manage their credit in spite of their best efforts. Misfortunes happen, and in this day and age, they are often expensive ones. If a number of such misfortunes happen too quickly for a person to recover from the previous ones, they can soon end up owing a number of creditors large sums of money. Other people get in trouble because their income becomes stagnant in relation to prices. They think they're just having a rough patch, but every month they fall a little further behind, until they discover that they're spending so much servicing their debt that they have nothing left to live on and have to charge ordinary expenses.
Debt counseling can be helpful for anyone who is having trouble keeping up with their bills from month to month, particularly if they owe a number of different creditors and are having trouble keeping track of everything and making sure bills don't go astray or get forgotten about. Debt counseling can do two important things that will help you get back on your feet and in control of your financial life. First, they negotiate with your creditors to get payments that are manageable on your income. Second, they give you one payment to make each month instead of a dozen or more, so you're not scrambling to remember what's due when.
However, this does not necessarily mean that you will actually be paying less. Although some credit counseling services are able to negotiate lower interest rates (generally under the condition that any revolving accounts such as credit cards are permanently closed so that you can't continue to pile more debt on them), this is not necessarily guaranteed.
After you consolidate your bills into one payment and are no longer incurring further debt, it should only take two or three years to pay them off. If it would take more than five years to pay these debts back, you may need to carefully consider whether this is really the right option for you. The longer the process of paying off your debts is stretched, the more interest you will end up paying. If your debts are too extensive and your income is simply too small, particularly if it has shrunk as a result of a disability that has permanently reduced your capacity to earn, you may be wiser to consider bankruptcy as a way of eliminating your debts.
In choosing a credit counseling service, you want to be careful and not just pick the first one you hear about. Although credit counseling services were originally designed to help the consumer, a number of organizations calling themselves credit counseling services have appeared that are in fact little more than glorified debt consolidation services. They often take no time to examine the client's resources in relation to their debt, and instead of working out livable payment plans that will actually help people work their way out of debt, just stick them with unmanageable consolidation loans that don't leave them enough to live on. There have been horror stories of people who, after paying their monthly fee to the credit counselor and their debt consolidation loan, have five dollars to buy their family's food for the entire month. (And since their income looks good on paper, they don't qualify for public or private food assistance such as food stamps or food pantries). Many of these people probably should have been steered to a bankruptcy lawyer instead, but for-profit credit counseling services were more interested in the monthly fees to be had from them before they collapsed entirely.
A good credit counseling service will not just set up a repayment plan. They will also help you reorganize your life so that you can avoid getting caught in a credit trap again. Many have mandatory weekly or monthly courses in budgeting and financial planning that will help you become more aware of where your money is going once you are on your own again. Some of them have even helped a non-working family member get a job to bring in additional income, or helped family members get second or third jobs for evenings or weekends in order to speed the process of paying off their debts.
So make sure you do your homework before you sign on with a credit counseling service. See if there've been any complaints against them with the Better Business Bureau or other monitoring services. Try to talk with people who've gone through their program recently (within the past year or two). Just because your friend or neighbor went through their program ten years ago, it doesn't guarantee the company is still good. Sometimes new management will find it more lucrative to focus on squeezing money out of the marks instead of genuinely helping people get out of the hole and back on their feet.
Entering a credit counseling program will put a ding on your credit rating, and will make it somewhat more difficult to get credit for several years after you successfully complete their program. However, compared to the damage done by being continually late on your bills, it is a small price to pay. And if you can recognize a growing problem soon enough and get help, credit counseling can help you avoid getting to the point where your only viable choice is bankruptcy.
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