What Is Consumer Credit Counseling Services?
When credit cards were created in the 1950s they were primarily used by businesses and travelers but over the decades more and more available credit has been offered to consumers. This increase in credit availability has led to an explosion in economic growth but has also unfortunately had the side effect of saddling many consumers with excessive credit card debt. Anything can be put on a credit card and subsequently items which used to be paid for in cash or with a check such as groceries or a visit to the dentist can now be delayed for months. Most individuals don't have a problem with paying off credit card balances or taking steps to limit purchases to keep debt under control. For those among us with excessive debt many retain the services of credit counseling agencies.
Consumer credit counseling services fill a need that was unheard of for many growing up. If a family came under severe in financial consequences normally the only option was to file for personal bankruptcy. Bankruptcy eliminated most if not all outstanding debt owed to creditors or loan holders and would provide an opportunity for these individuals or families to start with a clean slate. As more and more individuals encountered severe credit card debt, consumer credit counseling services were created to help these individuals avoid the financial ramifications of declaring bankruptcy. These agencies often have expertise and knowledge to work with creditors and help consumers dig themselves out of excessive debt while limiting the damage to their credit histories.
The very first nonprofit consumer counseling agencies were founded in the mid-1960s and since then numerous other agencies have formed to help combat excessive consumer debt. Reputable consumer credit counseling services are offered in every state and nearly every city in the United States. Many are non-profit and can work with consumers without charging a fee. This is because many receive a percentage payment of the debt collected from credit issuers which incentivizes these agencies to help consumers as best they can. Additionally there are other consumer credit counseling agencies which charge fees for the same services.
It is the goal of all consumer credit counseling services to help the consumer create a realistic financial plan in conjunction with creditors to help repay outstanding debt. If done properly this will not only eliminate the stresses of owing someone money but can also avoid personal bankruptcy. These agencies do this by contacting all current creditors and renegotiate terms to a create financial plan which results in balances which can easily be paid by the consumer. The tools available to counselors are the ability to negotiate 6 to 12 month repayment plans at 0% interest. They can also often have accumulated penalty interest waived as well as late fees and overdraft fees. Another available option may be the ability to make a payment in full on the account balance by making a partial payment for pennies on the dollar. It is possible for a consumer to owe a creditor $6000 but is able to have the balance paid in full for $3000 if the payment can be made immediately.
Another major benefit of utilizing consumer credit counseling services is the ability to make one payment per month and no longer having to deal with multiple creditors. Instead of having five creditors call a consumer multiple times per week trying to schedule a payment plan a consumer can now make one payment to the credit counseling service. This works hand-in-hand with the renegotiated payment plans and lower payment amounts. For example, a consumer could have total minimum payments of $1000 per month to five creditors with no negotiated repayment plan or waiving of fees. Most consumers can't make this payment for very long. Consumer credit counseling will instead receive $600 as a lump sum from the consumer and then pay each creditor individually while limiting interest and eliminating fees. Because of this renegotiation the entire $600 will normally get applied the principle only instead of most of the $1000 getting eaten by interest. Needless to say this can be an incredibly beneficial opportunity to pay off debt in a timely fashion with minimum stress.
Finding reputable nonprofit credit counseling agencies is as simple as utilizing online resources such as the Department of Treasury website and the Association of Independent Consumer Credit Counseling Agencies. If there's a local chapter you can also verify their reputation by utilizing services offered by the Better Business Bureau. There is almost never a reason to use credit agencies which charge a fee. These agencies don't necessarily offer anything different or better simply because you pay for it. It is also important to steer clear of unscrupulous credit counseling agencies by asking many questions. If they require a large upfront payment that should be an immediate red flag. Sometimes unscrupulous agencies will also receive the monthly payment from the consumer and neglect to pass on the payment to creditors. Regardless of who you work with it is always beneficial to contact your creditors to verify a plan is in place and payment is being received in a timely manner. As with any business also verify that it has the proper licensing and it is bonded by the state.
Consumer credit counseling services may not work every individual as some situations may be so dire that personal bankruptcy is the only possible solution. Legitimate credit counselors will be up front and honest by examining your situation and telling you immediately that they are unable to help. For many consumers however credit counseling can make the difference between ruining your credit for the next 10 years with a bankruptcy or getting back on track financially.
