Definition of a Consumer Credit Counseling Service
A credit counseling service is an organization created to advise consumers on credit issues. Often credit counseling services are non-profit organizations, however, there are numerous for profit businesses that offer credit advice and counseling. Whether dealing with a non-profit organization or a for profit company, be sure to ask about the services and information provided, the qualifications of the credit counseling staff, and the fees associated with the counseling.
The purpose of consumer credit counseling is to advise consumers on how to best manage and budget their money, on the way to achieving financial stability. Credit advisors take a detailed look at a consumer’s income and expenses, to aid the consumer in developing a solid financial plan. Counselors may recommend budgeting classes or workshops in financial stability, or they may work one-on-one with clients, to develop individual plans. Many counseling services offer these classes, along with pamphlets and educational materials, geared to repairing credit, managing money, and building financial independence.
Consumers with excessive debt, frequently seek the advice of credit advisors. In these instances, counselors may recommend a Debt Management Plan (DMP). Under a DMP, credit counselors arrange agreements with creditors that allow the repayment of unsecured debt at a reduced interest rate. Counselors negotiate with these creditors to determine a lowered interest rate and the waiving of late fees and penalties associated with the client’s account. DMPs are most often implemented to curb excessive credit card debt. They can take anywhere from thirty months to five years to complete. During that period, consumers must agree not to take on any additional debt.
DMPs can be an effective way to get out from under oppressive debt, but, as stated by the United States Federal Trade Commission, beware of credit counseling institutions that encourage a DMP as your only option. As a wise consumer, ask questions, do your own research, and work with a credit counselor to compile a variety of options to explore.