Get professional credit management advice
Credit counseling services offer educational resources to consumers with the aim of teaching them how to better manage their debt and how to avoid getting trapped in debt they cannot pay off. In some cases, consumer credit counseling agencies also act as an intermediary between creditors and debtors, helping negotiate debt restructuring plans and settlements for debtors who are in over their heads.
How Credit Counseling Works
Every credit counseling agency works slightly differently. In general, though, you should seek a not-for-profit organization; they'll work in your best interests rather than their own.
When you sign up with a credit management organization, you'll probably be invited to participate in a debt management plan (often abbreviated to "DMP"). Once you join a DMP, your creditors will usually close your existing accounts to prevent you from accruing any further debt. Many agencies that provide DMPs offer debt consolidation services, which amalgamate all of your creditors. You'll only have to worry about making a single monthly payment rather than managing each creditor individually.
These agencies also offer credit help in the form of reduced interest rates and the updating of delinquent accounts. Because they have privileged relationships with your creditors, they're able to secure more favorable repayment terms on your behalf. If you've gotten behind on your payments, getting your delinquent accounts current will be at the top of your credit management service's to-do list.
In 2005, it became law that any person declaring bankruptcy would have to first enroll in a credit counseling program. If you're having financial problems, it's vital that you explore all avenues available to you before you head to bankruptcy court.
The Difference a Credit Expert Can Make
Credit counseling can mean the difference between declaring bankruptcy and avoiding it. If you act early, before your debt has become completely unmanageable, you'll gradually be able to repair your credit rather than be saddled with the "bankrupt" label for the next 10 years.
Still, it's very important that you research the different credit counseling agencies out there before you sign up with one. Their fee structures can differ considerably, and consumer advocates have blown the whistle on disreputable credit counselors more than once for charging clients exorbitant fees.