Credit Counseling

Credit counseling sounds like a good idea and in some situations it is, but you should carefully evaluate whether it’s the right solution for you.  Remember Credit Counselors, whether for profit or non-profit have to cover expenses and will collect a fee or percentage from you, usually through a debt consolidation plan.  The truth is that despite screening many, if not most debt consolidation plans fail leaving the debtor worse off than before.

The problem may be that by the time debtors seek counseling or are referred by a creditor, it’s already too late.  When a creditor makes a referral, it means he’s given up on collecting the whole debt and is ready to negotiate.  He might even negotiate with you, a family member or an advisor who will represent you for no fee.  Understandably creditors want to cut their losses.  They may see debt consolidation as a way to collect  a little something for a few more months, so even if the plan ultimately fails they will succeed in cutting their losses.  Understand their motives are different from yours, so don’t start a consolidation plan that is doomed to fail.

Whoever sets it up, a successful plan should have concessions by all creditors such as no interest charges or fees for a time.  You should be paying into your contingency fund, so emergencies will not disrupt you repayment plan.  The plan should show substantial debt reduction with finances under control within 12 months.

If you are reading this section, it may or may not be time for a debt consolidation plan but you can bet “it’s time for some kind of financial plan.”  Stop hiding your financial woes and start talking to people who can help.