How Does Consumer Credit Counseling Work?

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Consumer Credit Counseling Services Offer Aid to U.S. Families

  • As the U.S. goes further into debt as a nation, many families are finding it harder to pay the credit card bills established over the last decade. Rising costs of living are cutting into money set aside for unsecured debt payments. Making a late payment on a credit card can wind up costing hundreds of dollars in late fees and force a family to make some tough decisions. Consumer credit counseling service offices are now available in every major U.S. city to help families start a budget and get back on the right financial track. Credit counselors act as liaisons between creditors and struggling debtors, working out a payment plan to satisfy both parties.

Organizing Financial Paperwork for Credit Counseling

  • The key to utilizing consumer credit counseling services is to enlist them before there is a need for bankruptcy. Waiting too long can lead to financial disaster. To know exactly where your family is financially, go through every bill coming into the home. Write down every payment going out monthly and all of the income for the family. It is best to have full awareness of the situation prior to the counseling appointment.

Setting Budgets and Repayment Plans Through Consumer Credit Counseling

  • Make an appointment with a local consumer credit counseling office. Always choose a reputable local office if possible, they will be dealing with all of your personal financial information. A debtor will be required to bring identification, most recent pay stubs, and most recent outstanding bills. The counseling service will then set a monthly budget for you which will include a payment to every debtor. Home foreclosures usually require a separate agreement with the mortgage company and may require an attorney on your behalf. The Consumer Credit Counseling office will contact all credit card and unsecured debt holders to agree to the specified terms of repayment.

Completing a Consumer Debt Counseling Plan

  • Most credit counseling budgets are set up to pay off unsecured outstanding debt in five to seven years. The key is to stick to the budget. Be completely honest with the credit counselor from the start and don't agree to a repayment plan that you can't live up to. There is usually a clause in the repayment contract that states the debtor may not open any new credit accounts during the repayment period. Doing so may nullify the repayment plan and allow the creditors to come after the debtor for full payment on outstanding balances including additional fees.

How Consumer Credit Counseling Affects Credit Rating

  • Using a credit counseling service may save a family from bankruptcy, but it still reflects poorly on a credit report. Even if a person fulfills a repayment plan completely and timely it will most likely cost interest points on a major purchase such as home or auto loans. Still, the comparison is that a bankruptcy on a credit history can lead to a complete denial of credit for major purchases.

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