Credit counseling comes with pluses and minuses

Below are some tips for how you can choose a financial professional that will help you, rather than help themselves. Financial counseling is now required for anyone filing for bankruptcy, but you want to select wisely.

The credit assistance business was doing rather well in the early part of the decade when the economy was in trouble and a lot of people were encountering debt problems. This is a busy, busy time for the credit counseling industry. The credit counseling business has really picked up since the enactment of sweeping bankruptcy reform laws, which went into effect in late 2005. The new debt relief legislation, passed enthusiastically by Congressmen, makes it mandatory that any individual who wishes to file for debt relief through the courts must first apply for credit guidance.

The plan to demand counseling as a prerequisite to a bankruptcy filing is laudable in that a large number of people don't know how to handle money until the damage is done. A bad counseling agency can make your already bad situation worse. Once you have $30,000 in credit card debt and a $15,000 salary, you need some help. Credit advisors can provide assistance to consumers, and a good one can help you manage your debt and give you some assistance that will keep you from having such severe troubles in the future.

Can anyone tell a responsible counselor from a harmful one? Here are some good things a counselor might suggest:
 

Set up a budget. Help you establish a strict set of cash spending guidelines so that you don't keep spending more money than you have.

Will they suggest a bankruptcy filing? Bankruptcy is a final option, to be sure, but sometimes it's inevitable. Watch out for any financial professional that suggests that they never steer anyone to bankruptcy.

Looking over your finances for the last several years to see where the problem began. The causes of your debt need to be documented. Some sources of debt problems might be an a lost job, a drug problem, a gambling problem, or simply spending more money than you have.

Take a look at your options. If you can not afford to pay back, could you do it with a bit of debt restructuring? Occasionally financial advisors can work with the lenders or creditors to set up somewhat more reasonable terms. Can you pay your way out of debt?

These solutions take time, and any financial professional worth her salt who is concerned with actually assisting you will bother to figure out what is best for you.

What are the harmful things an agency might do?

They only want to set up a payment plan. Such companies seem to have no interest in your financial matters or in how you got into trouble.

Look out for credit counselors who persuade you to stop paying your debts. Not paying your bills may make your lenders or creditors a bit more likely to negotiate your obligations, it will put a big dent in your credit score and you do not want that.

Frequently, counseling agencies do not pass on payments for you; they just keep it all. Some counselors will inform you, after meeting with you for just a few minutes, that they can help you by enrolling you in their company's debt management plan. Debt management plans usually include having you pay a recurring fee to the agency, which they, in turn, forward to your creditors after subtracting their commissions.

A reputable firm can help you get out of trouble, while a shady agency can make your life a nightmare.