Tap to Read ➤

How Do Consumer Credit Counseling Services Work

Indrajit Deshmukh May 13, 2019
If you find yourself in financial turmoil and are heading towards bankruptcy, contacting consumer credit counseling services will help you develop a systematic financial recovery plan. Here is a brief explanation of the working of these services is provided.
Consumer credit counseling services offer you assistance in dealing with your debt and will also put you on a debt management plan. These services will share sound financial advice and negotiate with your creditors to help you get out of debt. Such services sprung up way back in the early 1950s to help consumers pay their debt.
These agencies educated people  on consumer credit usage, instructing them how to avoid bankruptcy. National Foundation for Credit Counseling (NFCC) was created by creditors to propagate financial literacy. In 1990s, Association of Independent Consumer Credit Counseling Agencies came into picture, providing breakthrough services as over-the-phone counseling.

How They Work

If you find yourself in a financial quagmire and want to be debt free, there are counseling services to guide you. Also, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 stipulates that individuals filing for bankruptcy need credit counseling. Nonprofit services like the AICCCA play a vital role in such cases, by counseling consumers.
These agencies will set up an interview with a qualified counselor and will discuss your income and expense statements. Counselors will be arranged for a face-to-face or a telephonic interview, during which they will go through the details of your financial situation.
A counselor will get into the reasons of your financial distress, make you aware of your money management trends, and will give you tips to avoid recurrence of such situations. Debt counseling will also help you come up with options to increase your income and ways to settle your debt for good.
They will suggest making lifestyle changes; some will even advise you on your day-to-day expenses and refer you to voluntary organizations that might help you tide over some of your problems. You will receive suggestions on keeping your expenses under control. There are agencies that provide sound financial advice for free.
These counseling services will also negotiate with your creditors and assist you by coming up with repayment plans that you can adhere to. They might also be able to consolidate your separate loans and come up with one repayment amount which will be less than what you initially paid for.
Agencies might also recommend a debt management plan in which they will negotiate with your creditors. Based on your financial situation, the best services will be able to get your creditors to lower the interest rates and stop the late payment fees. They will also renegotiate the terms of payment after carefully assessing your current financial position.

Choosing a Service

It is very important to choose the right credit counseling service to help you get out of debt. You need to choose an agency with a standing in the market, which enables it to negotiate with your creditors. The best services are either a part of the NFCC or AICCCA. Debt consolidation is also one of the options these agencies could offer to help you out.
One of the drawbacks of the debt management plan is that it will affect your credit rating, even if you are able to repay your debt. Some agencies are also known to be an arm of the collections department of creditors. The fees they charge have come under scrutiny and most have been denied the nonprofit 501(c)(3) tax-exempt status.
If you are looking for a counseling service, try to check their credentials before agreeing to pay any kind of fees. It is also advisable to talk to your creditors directly before requisitioning third-party mediation.