Consumer Credit Counseling
Credit counseling, also known as debt counseling is a service offering education to consumers about how to avoid incurring debt that cannot be repaid. Credit counseling often involves negotiating with creditors to establish a debt management plan (DMP) for a consumer.
A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. DMP that offered usually involve reduced payments, fees and interest rates to the client. The Debt Management Plan is set up for the consumer is based on the terms dictated by the creditors that determine payments or interest reductions.
In a typical credit counseling situation, an individual may find that his or her financial obligations are not being met with income alone. He or she may only be making minimal payments on credit card balances and falling behind on other debts. Some of their creditors may have already started collection proceedings or other legal action. Declaring bankruptcy in an effort to reorganize his or her debts may seem like the only possible solution. But bankruptcy proceedings stay on a person's credit record for at least seven to ten years. Lawyers who specialize in bankruptcy filings are entitled to a fee for their legal advice. Federal judges assess the debtor's ability to pay and may require a substantial amount of monthly income be held by a trustee.
This is where a non-profit credit counseling service could provide a better alternative. A debtor can bring all pertinent documentation of his or her outstanding debts to a trained credit counselor. This advisor often works as a liaison between the credit card companies and their customers. Once the credit counselor has added all of the outstanding balances and monthly payment obligations together, he or she normally will be proposed with a debt management plan. By enrolling into the DMP, he or she will just need to make single payment to the credit counseling service which will address all of the creditors. Quite often the creditors are willing to accept these repayment terms in order to avoid the expense and questionable results of traditional collection methods.
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