Someone may seek debt counseling for a variety of reasons, or at least a variety of reasons may have contributed to his current plight. The obvious reason someone seeks debt counseling is that his finances are out of control. But solutions to debt problems often are determined by the nature of debt. Someone who has lost his job and has accumulated debt through no apparent fault of his own may need a recovery plan different from someone who simply ran up enormous credit card debt through reckless spending.
Counseling Versus Debt Repayment
The first thing to realize is the difference between credit counseling and debt management plans or debt consolidation programs. Credit counseling often is a first step in a process that results in some type of repayment plan, but many people seek financial counseling before their situation is hopeless. Credit counselors are certified or licensed financial professionals who provide advice on managing your money. They review your financial situation, including your debt level, spending habits, money management skills and overall approach to handling money. They usually assist you in developing a budget and offer educational materials and other types of help, like seminars and workshops. They may conclude that you do, indeed, need a debt repayment plan, but they first and foremost get at the root of your debt problems by analyzing your money management behavior.
Medical Bills
Debt counseling may help someone who is in financial trouble due to an illness or injury that resulted in large medical bills. A report released in 2009 by Harvard University, focusing on U.S. bankruptcies filed in 2007, found that more than 62 percent of filers stated that the reason for pursuing bankruptcy was loss of income due to illness. Debt counseling should be at least a first step if you have seemingly insurmountable medical bills. Unless you can successfully dispute the validity of your medical bills, you're on the hook for the total amount. Going the debt-consolidation or debt-management-plan route would result in a simple reorganization of your debt, which isn't much better than bankruptcy. Debt counseling may reveal other options, including charitable organizations, church and civic help, and will give you advice on how to deal with creditors. People who are in debt due solely to illness often are treated much more leniently by creditors than are people who get themselves into financial messes through wanton spending, and a counselor could help you navigate both payment strategies and a recovery plan.
Credit Card Debt
If you feel things slipping away, that your credit card debt is getting out of hand, seeing a debt or financial counselor is a good idea. Of course, you can wait until you're hopelessly drowning in credit card debt, but a counselor may be able to help you get your credit card spending under control before repayment plans or bankruptcy are your only options. Even if you've already reached the tipping point, a debt counselor can assist you with a recovery plan to ensure that you don't find yourself in the same situation again.
Divorce
Most people know well in advance of filing divorce papers that the handwriting is on the wall. Seeking debt counseling prior to the ax falling could help you plan for debts that you never foresaw. Again, even after the fact, a debt counselor should be a first step before going the bankruptcy or debt management plan path. If nothing else, you'll have a better idea of what you're getting yourself into.
Poor Financial Management
If you're lucky enough -- and honest enough -- to recognize that you're undisciplined when it comes to finances, or if you finally have realized that your friends and family are right when they tell you that your spending is out of control, a debt counselor is a good first step. She can help you see and understand where and why you're going off the tracks and develop a budget and plan to get you back on course. The keys, as always, are recognizing problems early enough to do something about them, and realizing that -- no matter if you get counseling or opt for a debt repayment plan -- you ultimately are responsible for your own financial turnaround.
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