If your finances are out of control, it is time to ask for help. Legitimate credit counseling agencies can help you identify money management problems, develop a budget and work with your creditors. Even if your situation requires bankruptcy, credit counseling can help you avoid money problems in the future.
Credit Counseling
Credit counseling focuses on helping debtors understand and develop their money management skills. In most cases, a credit counselor can offer an assessment of your financial circumstances, provide budgeting help and help you set up a repayment plan with your creditors.
Debt Management Plans
In a debt management plan, your credit counselor will negotiate a reduction in your interest rates and monthly payments with your creditors. Each month, you'll make one payment to the credit counselor who will then pay your creditors. A debt management plan can take years to complete, but it is only of the only options for avoiding bankruptcy.
Credit Counseling and Bankruptcy
Federal bankruptcy law requires everyone who goes through bankruptcy to receive credit counseling through an approved agency. During credit counseling, you may be given the option of completing a debt management plan. You can still choose bankruptcy, but you'll have to file the proposed plan with the court if you file for a Chapter 13 repayment plan.
Credit Counseling Scams
Some firms claim to offer "credit counseling" can make your financial situation even worse. These firms may push you into a debt management plan without giving you any real education, counseling or budgeting help. Others may claim to "settle" or negotiate your debts to less than what you owe. While it is sometimes possible to settle debt, you generally don't need a third-party to do your negotiations for you. Firms that offer this type of service generally charge high fees and may not save you much money over a standard repayment plan.
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