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What is Credit Counseling?

CounselingThe demand for credit counseling has increased with the recent requirement for individuals filing bankruptcy to receive credit counseling before being eligible to file for bankruptcy. As individuals seek to relieve their financial obligations through bankruptcy, they are thrust into the world of credit counseling. While this may seem like a burdensome step you must take before filing for bankruptcy, credit counseling offers many benefits that may help you on the road to financial freedom.

Credit counseling is a service where you can receive advice about your current financial situation and discuss ways to improve your financial future. Credit counseling agencies should not only be able to talk to you about bankruptcy, but various other options you have available to you such as consolidating your debt into one monthly payment. Debt consolidation may be misleading in some instances as some credit counseling agencies advertise that they can reduce your monthly payment. This is not always possible as not all of your creditors may be willing to participate in the repayment program developed by the credit counseling agency.

Credit counseling organizations are in place to help individuals that are overwhelmed by debt. Typically, credit counseling agencies are only able to help individuals develop a plan to pay off their unsecured debt such as credit card debt. Secured debt and other types of debt, such as child support and student loans, are generally not included in credit counseling repayment plans. That means you must continue to pay your mortgage per the terms of your loan agreement or risk losing the collateral on that loan.

Credit counseling agencies should not only be able to tell you about bankruptcy and other options for getting out of debt, but they should be able to tell you if you really need to file for bankruptcy or not. In addition, credit counseling agencies may be able to help you develop a budget that will help you learn to live within your means.

If you are not able to afford credit counseling from an approved credit counseling agency, the credit counseling agency is required to provide credit counseling free of charge. It is important that you discuss fees before you begin and request a fee waiver if you cannot afford the cost of credit counseling. Approved credit counseling agencies will provide you with a certificate of completion for you to submit with your bankruptcy petition if you determine that bankruptcy is the best option for you.

Participating in a credit counseling program may affect your ability to secure future debt. Many creditors do not look very favorably upon credit counseling. While your credit score is not affected by participating in a credit counseling program, your participation in such a program will appear on your credit report for lenders to take into consideration.

If you are looking for a credit counseling agency, it is important to be aware that there are many fraudulent companies out there. The best way to find a trustworthy credit counseling agency is to consult the U.S. Trustees’ Program of approved credit counseling agencies. This list can be found at http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm.