Credit Counseling: A Surefire Way to Manage Debts

Credit Counseling: A Surefire Way to Manage Debts

Due to the awful consequences of being burdened with too many debts, a lot of people have sought the help of credit counseling agencies. These are companies that are dedicated in helping the borrowers in managing their debts so that they can effectively pay their creditors. Those who are having second thoughts about filing bankruptcy may just do well with debt counseling instead.

Filing for bankruptcy, although seen as the last resort, is often the most expensive legal action when it comes to debt cancellation. Even if it seems to guarantee the debtor of an end to all his financial obligations, the cost for running the proceedings is like paying a huge portion of the interests. Besides, some states have already made some stricter guidelines to keep irresponsible debtors from abusing their rights. A good alternative to this legal action is credit counseling.

Credit or debt counseling is a service that is generally offered for free. It involves the mediation of a credit counselor whose aim is to help the debtor in managing his finances so that he can pay all his debts in a much easier way. Because of the growing popularity of this service, it has been repackaged as a private and for-profit program. Hence, only a few nonprofit agencies now exist.

Debt counseling works by giving the borrower an expert advice on how he can effectively handle his debts. It mainly offers assistance regarding financial resources management and credit improvement concerns. Usually, after a series of financial analysis, the credit counselor will then try to negotiate with the creditors to reduce the amount of debt that the client owes. This process is referred to as DMP, or Debt Management Program. Under the DMP, the counseling agency prepares a repayment method for the debtor so his multiple monthly payments are consolidated in one payment schedule. This strategic payment plan promises the debtor to become debt-free in some three to six years time.

Because of the increasing number of consultancy firms that have mushroomed all over the place, it is indeed hard to find the one where you can entrust your debt payments. Some agencies that charge their clients often act like mere debt collectors for the creditors. It has been said that they are paid on a commission basis, by the creditors themselves, which tends to affect the credibility of their services. For this matter, it is advisable to consult a free counseling agency. A nonprofit debt counseling company does not charge for service that the credit counselors provide. It does not partake in the money that is intended for paying the debts to creditors. Still, if finding a free counseling program seems impossible, go for one that charge according to your financial capacity. Do not simply fall for advertisements that sound too good to be true, like in agencies that promise to slash off up to 50% in interest rates. While this might be negotiable, most reputable agencies cannot go beyond 20% since haggling for a higher reduction rate will only make the creditors more reluctant to forgive a good amount of debt.

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