Many people have become overwhelmed with debts that they have difficulty paying. For some, the best solution may be bankruptcy. In many cases where the problem is not as severe, it may be possible to negotiate concessions from lenders to ease the burden. Credit counselling agencies provide help with this, and other potentially valuable services.

These agencies primarily help with unsecured loans such as credit card debts. They can also provide some help with secured loans such as car payments and mortgages, but this not their primary expertise. They generally offer counselling, debt management programs, financial planning training, and other services.

When a consumer begins working with an agency, the first step is to gather information about the consumer’s financial status, including assets, income, and debts. A counselor will analyze this information and work with the consumer to determine the appropriate steps to take. In many cases, one of the key steps will be to establish a debt management program for the consumer. These programs generally insert the agency as an intermediary between the consumer and their unsecured creditors. The agency will usually negotiate concessions from the creditors.

The concessions may include reduced interest rates, waiving of late charges and other fees, and possibly reduction of payments. In many cases accounts that are past due will be will be re-aged to make them current. In most cases balances will not be reduced.

As the plan commences, most accounts will be modified to disallow future charges, at least while the plan is in effect. There is often a dramatic moment where credit cards are cut in half and discarded. The client will generally make a single payment to the agency, which will then redistribute the agreed payments to the creditors.

There are many different kinds of these agencies, and government agencies have issued caution alerts to citizens recommending a cautious approach in dealing with them. Most are reputable and help many people recover from heavy loads of debts. However, there are a handful who can do more harm than good.

There have been cases of for profit agencies charging excessive fees to their customers. There have been a handful who have offered to manipulate credit reports by causing valid information to be removed. Some agencies do not really provide professional counselling or education. The debt management programs they offer may be valuable, but complete service requires more than this.

Many of the non profit agencies are actually funded by the creditors that they deal with. This has caused accusations that they may be acting more in the interest of the creditors than the consumers. An example of this would be advising an individual against bankruptcy when it might actually be the best choice in the situation.

The effects on credit ratings and reports of going through a debt management program are complicated. In many cases if the program is successfully completed or in progress, it will not cause the numerical credit score to go down. However, it will be noted in the report that the individual has been in such a program. Companies making credit decisions can see this. There is no standard way of interpreting this information, it could be viewed as positive, negative or neutral.

Credit counselling is a valuable service for most people who use it. In many cases it can resolve a financial crisis without the need for bankruptcy. Some caution is appropriate, but the benefits almost always outweigh the problems.

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Category: Finances
Keywords: credit counselling, credit problems, bad credit, business sales, sales training, debt consolidation