Debt counseling, also known as credit counseling, is designed to help people restructure their finances and debts so they can pay their obligations and, if possible, avoid bankruptcy. There are several forms of debt counseling available, which could range from a simple budget planning session to a formalized debt repayment plan.
Basic Counseling
Basic debt or credit counseling is when a consumer and a credit counselor sit down or speak on the phone to review a budget. A counselor advises what areas can be cut. That advice alone could be enough to help someone get out of debt.
Pre-Bankruptcy Counseling
Some consumers may try debt counseling but still have to file bankruptcy. The U.S. government requires proof of basic credit counseling before accepting a bankruptcy case.
Debt Counseling and Repayment Plan
The most common form of debt counseling is when an agency contacts a consumer's creditors and renegotiates the terms of the accounts, lowering the dollar amounts and interest due. Then the agency, for a small fee, administers all the consumer's payments to the creditors as agreed.
Warning
Before going into debt counseling, you should check the reputation of the company. A good rule is to consider only agencies approved by the U.S. government, even if you do not plan to file bankruptcy.
Alternatives
Some people may need to file bankruptcy even after debt counseling. Others may need some one-time advice and can then manage their remaining debt on their own without further professional intervention.
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