Credit Counseling

Credit counseling stands for the process of offering an advice and education on the possible ways to control one’s financial situation and to avoid possible future difficulties. The first credit counseling companies originated in the US in 1951. Creditors from all over the country joined in the establishment of the National Foundation for Credit Counseling. Its aim was to monitor legislative and regulatory activities and to promote financial literacy among the credit borrowers. The foundation did not function as a collection agency on behalf of the crediting institutions. The first franchises appeared in the 1960s. They aimed to offer an advice and education directly to the clients.

At present, the credit counseling service covers the preparation of household budgets so that the individuals keep track of their finances. Credit counseling is also referred to as debt counseling and consumer credit counseling. It also involves negotiations with the creditors in order to agree on a debt management plan that is adequate for the borrowers. The plan aims to assist debtors in the repayment of their dues. Moreover, it typically involves reduced amounts of payments to the creditors.

The credit counselor will request detailed information on the dues, sources of income, and assets of the debtor. He needs a good grasp of the amount of money that the borrower can repay on a monthly basis. Possibly, the solution lies in the reorganization of the debtor’s finance management. The aim is to increase one’s income or to reduce the expenses. There are several alternatives to boost one’s income. Firstly, debtors can work overtime or they can start a second job. Secondly, individuals may try to find a well paid position which will eliminate the need of overtime working hours. Finally, they may start a private or home-based business. In terms of expense’s reduction, the credit counselor may offer an advice on possible ways to lower the monthly bills, cut excess expenditures, and repay high interest credit cards. Finance management can assist the budget restructuring so that individuals secure some additional resources and repay their debts. In this situation, credit counseling boils down to a couple of meetings with the counselor.

When budgeting fails this task, the counselor may propose the preparation of a debt management plan. The counselor negotiates a debt settlement with the creditors while the debtor agrees to repay the dues in a period of three to five years. The debt management plan entails the agglomeration of multiple loans into a single monthly payment. Usually, the credit counselor will be able to settle for a smaller amount than the sum currently owned by the debtor. It should be noted that the plan does not include all creditors and cannot be binding on the covered institutions.

Customers should always compare the fees and services of the various credit counseling bodies. Moreover, the credit counseling service will appear on their credit report for a period of two to three years. This may have a negative impact on the debtors` prospects due to the fact that the lenders and employers have access to their credit record.



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