What You Need to Know about Credit Counseling

For many people experiencing financial struggles, bankruptcy is an absolute last resort and they will do whatever it takes to avoid filing. Unfortunately, “whatever it takes” is often far more detrimental than had they chosen bankruptcy. Though bankruptcy does signify a person is experiencing significant financial hardship, it provides an opportunity to put an end to a situation that has spiraled out of control. Bankruptcy gives you a path back to financial freedom, provided you are pro-active and patient.

Avoiding Bankruptcy at a Serious Cost

One of the tools people use to avoid bankruptcy is credit counseling. Credit counseling sounds simple enough – especially if you have found yourself in financial hardship because you never learned how to manage your finances. Unfortunately, so-called credit counseling can compound your financial woes and create a scenario in which you are much worse off than you were before taking action.

Credit counselors market to those who are financially desperate. They understand how stressful it can be to be trapped in a cycle of never-ending debt. Originally, credit counseling had some value. Counseling agencies were small businesses serving local markets. Their goal was to help consumers get a grip on their financial situation and educate them about budgeting and managing debt. These counselors worked with only a small group of people, so everyone received personal attention and was given customized advice on debt management. In some cases, consumers were even advised to file for bankruptcy.

When Crediting Counseling Went Wrong

As debt and financial struggles increased, so did the number of credit counseling agencies. Many of these agencies were no longer local and many were servicing hundreds of thousands of clients at a time. These agencies had the budgets to reach national audiences and participate in their increasingly competitive market. The goal was no longer to help the consumer, but to make as much money off a person’s problems as possible. Credit counseling agencies charged exorbitant rates and lured consumers into situations in which their debt would never go away.

True credit counseling agencies modeled after the original version charge only minimal fees to cover their expenses. As a matter of fact, many of them are non-profit organizations. Unfortunately, you cannot assume non-profit automatically means above the board, so do your research. Beware of organizations or companies that charge percentages or commissions, as opposed to a flat rate fee to help you. In some cases, it might be the credit card company paying the fee and not you, but this could also be a case of a kickback from the credit card company. Remember, credit card companies view counseling agencies as tools to help them track down all or a portion of their payment, so you need to know who works for whom in various situations.

Finally, keep in mind that depending on your situation, all the credit counseling in the world might not be enough to help you recover from your situation. Even if you find an agency that does have your best interest in mind, they are not miracle workers. Ultimately, bankruptcy might be your best option.

If you are struggling with debt and harassment from bill collectors, we can help. Contact the law office of Frank J. Laperch, PC at 845.942.5500.