What is credit counseling?

If you’ve heard stories about people in financial trouble, you’ve probably also heard about credit counseling. Quite often, people tend to associate it with debt negotiation or settlement, even though there are clear differences between them. If you resort to the services of a credit counselor, it means they will work with you so that you can find a way to lower your monthly payments towards a debt balance to a value that you can more easily afford.

If bill collectors are starting to make their presence felt, or if your accounts have been submitted to the attention of collection agencies, then calling a credit counselor can be a good idea. This article will explain the process to you so that you can be prepared, should you ever need these services.

You should be able to tell the scams from the honest services. If you find an offer promising to fix your credit report in no time, don’t consider it. Such fixes are not possible – not legally, anyway. A better idea is to check the companies accredited by Consumer Credit Counseling Services.

When you start discussing the matter with your credit counselor, make sure you’re not keeping any information from them. Anything you leave out might lead to unpleasant surprises because it prevents them from assessing your situation correctly.

When you’re done explaining, the counsellor will take over. They will talk with your lenders and attempt to renegotiate a payment schedule that you will be more comfortable with. They might also be able to lower the minimum sum required for your monthly payments.

You may have heard about the so-called debt management systems. Such a system means that you can submit a lump sum to your credit counseling agency and let them manage your monthly payments so that you won’t have to worry about them. The downside is that it is not impossible for the company to make a mistake and miss a payment – which will reflect badly on your credit report. In other words, it might be a good idea to manage your payments yourself, or at least check the history of the company before deciding whether or not you want to let them in charge of your payments.

Most serious companies will not charge you high fees for their services. In fact, this is another way to make sure you’re not dealing with a scam. If the company requests you to make a large upfront payment, you should avoid it and look for lower-risk and lower-cost services somewhere else.

Resorting to the services of a credit counseling company may add a bad mark to your credit report since it is a clear sign that you are in financial trouble. However, to avoid the risk of making any mistakes while trying to restore your credit history – which could cause even more trouble, possibly bankruptcy -, it might be a better idea to let a professional help you.