Credit and Debt Counseling, Do You Need It?

I can't imagine that credit and debt counseling is a new phenomenon! I picture in my mind the old West days. Some gnarled, bow-legged cowboy comes into a saloon and sidles up to the counter, ordering his normal brew. He tells the bald and plump bartender that he is up to his stirrups in debt and doesn't know what to do about it! The bartender leans confidingly toward the cowboy and suggests that...he sell his saddle!

What kind of silly suggestion is that? Without a saddle, he can't make a living! Believe it or not, in today's society, when you seek credit and debt counseling, you often get suggestions just as nonsensical! You might even be pressured by unethical individuals to donate "voluntarily" to their "nonprofit" organization in order to utilize their services. I guess the idea is that you will get out of debt by paying them money which you could have used to pay your debts! Be on the lookout for these types of companies!

On the flip side, there are many for profit and nonprofit debt and credit counseling service companies that are legitimate and helpful. Do your homework by researching these companies and asking for referrals. For profit companies will charge a fee for their services. Good debt management and credit counseling services will take the time to review your finances and debts with you. They will help you prepare a budget (Scary thought!) and explain the necessity to stick to it!

Therefore, a reasonable budget and your new resolve will keep you in line and keep you from having to sell your saddle in the future. However, what about the debt you have accumulated to date? How does that "go away"? Well, your credit counseling and debt management company will include in your budget the payment of your outstanding debt and, in time and with regular payments, it will "go away". The representative/bartender from your consumer credit and debt counseling company may suggest a debt management plan (DMP).

A DMP is a negotiated agreement between you and your bartender (Oh, sorry, I meant your debt and credit counseling service!) where it is agreed that your debt and credit counseling service will attempt to reduce your interest charges and eliminate your late fees and you agree to pay your unsecured debt (credit cards, student loans, etc.) on time without using or requesting additional credit. Your credit and debt counseling service will contact your creditors and negotiate an agreement whereby you may obtain, among other things:

- lower interest charges;

- elimination of late or over limit fees by making regular monthly payments; and,

- re-aging of your delinquent account to current standing.

If your debt management and credit counseling services company suggests a DMP, they will require you to deposit each month an amount which represents the monthly payment of all your unsecured debt. Your debt management and credit counseling services company will then pay all of your monthly unsecured debt payments from this deposit. This is how the already accrued debt "goes away"! And, the budget is intended to keep you from being in debt again!

So, credit and debt counseling companies can be very beneficial! However, be careful which bartender (Oops, credit counseling and debt management company!) you choose!

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