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Debt Reduction

What Is Credit Counseling?

Credit counseling is the process where a person engages the services of a financial expert or company to get guidance on how to get out of debt and stay out of it. However, this process is more than just getting advice. A credit counselor should also do the negotiation with the creditors on behalf of the client. This is part of coming up with a personalized debt management plan that the client will follow in order to be able to repay what is owed to their creditors.


The repayment plan negotiated will normally come with reduced payments, lower interest rates and possibly have fees (such as late payment fees) removed. On top of this, the plans also align with the goals of the credit card companies, which is to minimize losses and avoid charging off uncollectable accounts. Therefore, using a credible credit counseling company can be an excellent solution for an individual or company riddled with debt.

Benefits Of Credit Counseling

The basic idea behind debt counseling from a client's perspective is to initially find help to get their debts paid off. This should be by way of getting reduced interest rates, easier repayment terms (especially if one has fallen behind with their debt payments). A credit counselor helps you to get the reduced interest repayments by negotiating with your creditor on your behalf. Besides the low interests, the counselor also negotiates a personalized repayment plan that allows you to pay back your debt in easy installments that you can afford. Additionally, through a credit counselor, a borrower can get relief from late fees even though the new repayment schedule will most likely be slower than the previous one.


Another huge benefit of hiring the services of a credit counselor is the fact that you get professional financial advice on how to stay out of debt. It is not enough to get help getting out of debt, only to get back in to it which is a very common pattern among consumers. The advice shred in credit counseling teaches a person how to start living within their means, as well as the need for extra income sources. A good credit counselor should guide you in these areas.

Disadvantages Of Credit Counseling

When a consumer makes an agreement with their creditors through a credit counselor, there may be lending restrictions placed on them.   Some of the restrictions which are very common prevent the consumer from further use of the credit card or even applying for more credit cards.  However, this may actually be considered a benefit for the consumer because it was due to the mismanagement of their credit that got them into such a predicament.  Therefore, these restrictions could help them avoid future problems.  .


The primary risk is that there are plenty of exploitative credit counselors who are willing to take advantage of the person or company wallowing in debt. Since credit counselors are not subject to the same level of regulations found in other areas of financial services you have to be a bit careful when choosing one.  A good place to start is with the Department Of Justice list of approved agencies.  You can search by state and I would suggest choosing one that has a local office.  If you don't find one, then you may want to talk to a local accountant,  attorney or financial profesisonal to find the name of a reputable agency.