After an unexpected medical cost or after a family member loses a job, your first thought is to let the bills pile up. This is even truer f money had been tight before. You want to hold off as long as you can with the hope that things will get better. If they do not get better, your first thought often goes to bankruptcy. Chapter 13 Bankruptcy allows individuals to worth with their creditors through the courts to restructure payments. But there are downsides to Chapter 13 Bankruptcy. The Bankruptcy will remain on your credit record for 10 years. Also, you will not be able to get additional credit without the court’s permission. It might be difficult to get credit even after you have repaid.
There are other options. In recent years, third party credit counseling has become an option. Credit counseling agencies are for-profit or non-profit organizations that work with creditors to consolidate debt. Current accounts are closed and future payments are redirected to a new debt management agency. This reduces the number of creditors and can reduce interest payments.
Not all credit counseling agencies are created equally. Counseling agency should be accredited by the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. It is also important to check with the Better Business Bureau for customer complaints. When talking to a credit counselor, it is important that they work with you to reduce debt payments now AND in the future. Credit counseling is not a panacea. It will not get read of debt overnight. Anyone who tells you that you will only have pennies on the dollar is trying to take advantage of you.
When talking to a credit counselor, find out whether their organization reports your status to credit agencies. While enrollment will not affect your credit score, a not will be put on your record. This may make it easier to obtain credit while you are restructuring your current debt. The other thing to keep in mind is the cost of credit counseling. Often times a credit counselor agency will change an enrollment fee and monthly maintenance fees, even if they are a non-profit.
Much criticism has been laid against Credit Counseling agencies. Some of this focuses on their business model. Credit Counseling agencies can keep up to 15% of recovered funds. This has led some critics to argue that they agencies are more apt to work on behalf of creditors. Others have argued that using a credit counselor can harm your future access to credit. While they may help pay off debt, having a note on your credit score that you used a credit Counselor may indicated to a car loan lender that you are not a responsible borrower.
Continue reading here: Understanding Credit Counseling