Definition of Consumer Credit Counseling Service
A credit counseling service is an organization established to advise consumers on credit issues. Often credit counseling services are nonprofit organizations, but there are many for-profit businesses that offer credit counseling and counseling. Whether you work with a non-profit organization or a commercial company, be sure to ask about the services and information provided, the qualifications of the credit counseling staff, and the fees associated with counseling.
The purpose of consumer credit counseling is to advise consumers on how best to manage and budget their money on the way to achieving financial stability. Credit counselors take a detailed look at a consumer’s income and expenses to help the consumer develop a solid financial plan. Counselors may recommend budgeting courses or financial stability workshops, or they may work one-on-one with clients to develop individualized plans. Many counseling services offer these classes, along with brochures and educational materials aimed at rebuilding credit, managing money and building financial independence.
Over-indebted consumers often seek advice from credit counselors. In these cases, advisers may recommend a debt management plan (DMP). Under the DMP, credit counselors arrange agreements with creditors that allow unsecured debt to be paid off at a reduced interest rate. Consultants negotiate with these lenders to determine a lower interest rate and waiver of late fees and penalties associated with the customer’s account. DMPs are most often applied to limit excessive credit card debt. They can take anywhere from thirty months to five years to complete. During this period, consumers must agree not to take on additional debt.
DMPs can be an effective way to get out of oppressive debt, but as stated by the United States Federal Trade Commission, beware of credit counseling institutions that promote DMPs as your only option. As a wise consumer, ask questions, do your own research and work with a credit counselor to put together different research options.
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