When debtors are overwhelmed by their debt and they don’t want to file bankruptcy, they usually end up on two options: either they seek help from a credit counselor or from a bankruptcy lawyer.
The aim of a credit counseling company is to stir you away from filing bankruptcy.
So what can you expect at a credit counseling session?
These companies provide you budgeting advice to help you prevent future debts. They can also negotiate with your debtors for a payment plan which is most often a fixed amount that you pay each month over a period of time.
On your counseling session, they will:
- Obtain and verify personal information and all your income amounts;
- Review budget and discuss spending recommendations;
- Determine if income covers essential monthly expenses;
- Review assets and liabilities;
- Obtain debt account statements;
- Review your options based on your individual financial circumstance;
- Create an appropriate action plan.
How do they make money?
You shouldn’t believe Credit Counseling Companies who say that they are non-profit organizations. They have to pay their employees and other overhead costs. Some of them receive funds from foundations. Others ask their customers of a one-time set-up fee. Still, other companies have a cut if they have arranged your repayment plan with your creditor. In a repayment plan, you usually arrive on an agreement that you will be paying a monthly fixed amount to your creditor through the credit company. Why through the credit company and not direct to your debtor? Creditors put the money you pay in a trust account. If you finally have enough accrued amount to pay your credit, this is the only time they withdraw it and hand it to your creditor. A certain percentage goes to their pocket.
Knowing the purpose and how credit counseling works. You might also want to consider negotiating your budget on your own or to still avail of the services this companies offer.
For some, it is better to instead seek help from a bankruptcy lawyer because they are given more options. On some cases, filing for bankruptcy is more feasible than opting for a repayment scheme. Thus, exhaust all means before making your decision.
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