What is credit counseling and how can a consumer benefit from it?
Credit counseling is the process which explores the various probabilities of debt repayment without filing for bankruptcy. It educates the debtor about credit, budgeting and managing finances. The new bankruptcy law necessitates that a debtor is required to undergo a credit counseling session with a credit counselor who is approved by the Fed.
A credit counseling session aims at rising up to the immediate financial needs of the consumers and also educates them to handle debts more effectively in future.
Credit counseling can help you in consolidating your bills by working out a monthly payment plan, which satisfies a minimum debt amount. Credit counseling is best for individuals who are in financial distress and need a simplified method of repaying debts.
A credit counseling program lasts for approximately 5 and half years. During the course of the program, the credit counseling agency talks to the different creditors and proposes to lower the rate of interest by 9% to 10%. By availing the new reduced rate of interest, a debtor can comfortably pay back the debts and become debt free when the program ends.
While a consumer is undergoing the credit counseling program, the same is reported to the credit bureaus. There are few creditors who refuse to lend money to consumers as long as they are undergoing the credit counseling program.
The terms credit counseling and debt consolidation are often used interchangeably. Credit counseling essentially implies a particular type of debt relief program whereas debt consolidation comprises a much wider range of debt related events.
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