Do you need debt consolidation credit counseling? If you are deep in debt and headed for personal bankruptcy you might need to consider credit counseling.
Debt consolidation credit counseling is an important undertaking. Avoiding bankruptcy and keeping your credit record intact are two keys to financial success. You also need to know how to distinguish a good credit counseling agency from a bad one. There are many good credit counseling agencies out there but some are bad apples. It is important to understand how credit counseling can effect your credit report. Also be aware of a key change to the bankruptcy laws that involve credit counseling.
What is Debt Consolidation Credit Counseling?
Debt consolidation credit counseling agencies provide a service to people who are in over their heads in debt. Credit counseling agencies provide counselors, education, and Debt Management Plans (DMP). A Debt Management Plan is a service where consumers send an agency a lump sum payment which is then distributed to creditors who have agreed to the plan. Creditors sometimes agree to lower interest rates, waive fees, and post updates to credit reports as well. The convenience of making one payment to a single credit counseling agency is also a plus. The problem with Debt Management Plans is they only address unsecured debt. Secured debts such as home loans or auto loans should be prioritized and paid first. You risk losing your home through foreclosure and your car through repossession if you fail to make your payments.
How to Find a Good Debt Consolidation Credit Counseling Agency
A good credit counseling agency is one that offers an in-person consulting in your local area. Services beyond Debt Management Plans including personalized education are also good options to expect. The National Foundation for Credit Counseling (NFCA) and the Association of Independent Consumer Credit Counseling Agencies (AICCCA) are the key industry groups for credit counseling agencies to be members of. Ideally you want a counselor who will give you personal attention and present you with all of your options. You don’t want to feel pressured into a bad decision.
Some Debt Consolidation Credit Counseling is a Scam
With consumer debt at an all time high and federal personal bankruptcy laws requiring credit counseling many aggressive agencies have opened up shop targeting unsuspecting consumers in need. Non-profit credit counseling status does guarantee legitimacy or trustworthiness. In many states non-profit status is a requirement for a debt consolidation credit counseling agency to do business. Another caveat is that some not-for-profit credit counseling agencies are closely aligned with for profit businesses. Some debt consolidation credit counseling agencies charge excessive fees and only push DMPs. Asking good questions and referring to credit counseling agencies on the NFCA and AICCCA lists will help you sort the wheat from the chaff.
How Debt Consolidation Credit Counseling May Effect Your Credit Report
When you enter into a Debt Management Plan creditors will often make updates to your credit report. These updates include “re-aging” accounts and removing delinquent payment references. A potential drawback is that since lending is subjective, lenders may consider the notes your creditors put on your report as a good or bad sign. A good sign would be that you took steps through credit counseling to take care of your debts. A perceived bad sign would be that you had so much debt that it became unmanageable and you may be a credit risk. In the long term this may effect your credit score.
Debt Consolidation Credit Counseling and Personal Bankruptcy
If you decide that personal bankruptcy is the best course of action for your situation, you need to be aware of a key change to the bankruptcy laws. Before you can file for bankruptcy under either Chapter 7 or Chapter 13 you need to know the law. Changes in the Federal bankruptcy laws brought about by the Bankruptcy Act of 2005 require folks to get credit counseling from a federally approved agency six months before they can take advantage of bankruptcy protection.