Debt counseling services have grown into an industry of more than $7 billion*, but this is also an area that has attracted companies who use misleading and dishonest business practices. Debt counseling, also known as credit counseling, can be the answer for some consumers who find themselves with debt problems, but it is important to sign up with a legitimate business that puts your best interests before their revenues.
Preferred debt counseling advisers actually do a good job in helping borrowers to get back on their feet after falling behind in their debts. One of the top resources for helpful debt counseling is the National Foundation for Credit Counseling (NFCC), which is a national nonprofit network that includes about 850 different locations throughout the United States. Debt counselors who are affiliated with the NFCC must have passed third party counselor certification exams and must adhere to certain standards of quality. Most of the time, the services provided by NFCC agencies are at no or very little cost to borrowers.
The basic debt counseling process is a bit different for each borrower, but it usually follows the same sequence of events. First, the borrower realizes that they need help to work out the problems they are having with the credit card debt that they have accumulated, so they contact a debt counseling service. The debt counselor will make an appointment for an in-depth interview, before which the borrower needs to gather financial documents and other information.
During the in-depth interview, the debt counselor and the borrower will review the current situation and discuss solutions that can help to alleviate the borrower's difficulties with debt. Often the best solution involves developing a spending plan that balances the borrower's living expenses with the repayments to their creditors.
A debt counseling service can help to renegotiate the terms of payment with creditors; they may be able to negotiate reduced interest rates or a longer repayment schedule. There are times, however, when debt counseling cannot provide a solution; if a borrower is too far in debt, even a debt counselor may not be able to negotiate payments that are within the budget. In this case, declaring bankruptcy is usually the borrower's best option.
When evaluating debt counselors, watch for warning signs that can indicate a red flag with a particular service, including:
Be aware that signing up for credit counseling will often be reflected in your credit history, but this notation is vastly preferable to showing a bankruptcy in your credit report.
* Source:
http://articles.moneycentral.msn.com/Banking/YourCreditRating/TheConsumersGuideToCreditCounseling.aspx