Consumer Credit & Budget Counseling

Debt drives people to a variety of actions, according to the Federal Trade Commission, or FTC, website, from simply creating a budget focused on paying down bills to working with creditors when financial problems threaten to cause late payments to entering credit counseling. Counseling may be voluntary or it can be part of a bankruptcy filing.

Voluntary Counseling

Credit counseling is a service through which you can gain education about money management, get help making a budget or even create a formal debt management plan, or DMP, that's administered by the counseling firm, according to the FTC website. Credit counselors can be located through financial institutions, universities and the U.S. Cooperative Extension Service, as well as through professional organizations (see Resources). These organizations often offer certain services and products, such as online financial education materials, for free, while more in-depth help, such as counseling sessions or a DMP, requires a fee. Liz Pulliam Weston, a writer for the MSN Money website, explains that DMPs are geared to help you pay off bills within five years. Services are usually available at face-to-face meetings or through phone calls, email or online chats.

Prebankruptcy Counseling

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 forces people to go through credit counseling with a government-authorized organization within 180 days of filing, the FTC website advises. The counseling usually consists of one 60- to 90-minute session, conducted either in person, online or over the phone. The firm discusses your personal financial situation with you and lays out other options besides bankruptcy. The charge is usually about $50, although the FTC site explains that you can arrange in advance for a waiver if you can't pay.

Post-Bankrupcty Counseling

Your debts aren't discharged in a bankruptcy unless you go through a debtor education course provided by a government-approved firm. The FTC site explains that the course runs about two hours and covers financial skills such as careful credit use, money management and budget creation. The cost, which runs from $50 to $100, can be waived if you're unable to afford it. You must prove completion of the course to the bankruptcy court with an official certificate given by the course provider. You can complete the requirement with an in-person class or an online or telephone session.

Warning

The FTC warns that credit counseling firms often advertise nonprofit status, but that doesn't automatically legitimize those firms or mean they charge affordable fees. Ask any credit counselor up-front about charges, as well as about training and certification. An ethical firm should have reasonable, clearly explained fees and shouldn't try to push you into a DMP without fully exploring other options such as money management education and self-budgeting.