It is easy for people to quickly ring up more on their credit cards or bank loans than they can readily handle. Credit counselors work to help consumers get a hold of their debt as an alternative to going into bankruptcy. While it is possible to treat high debt without counselors, they often know how to go about it more readily, and can suggest courses of action that you might not have thought of yourself.
Significance
Credit counselors are generally required whenever someone's debt situation has gotten out of hand. This includes an inability to make minimum monthly payments on credit card bills, routinely being called by debt collectors and creditors, multiple failed attempts to work out a debt repayment plan with creditors, and consistent late payments on regular monthly bills. If any of those factors are a part of your financial life, you may want to consider speaking with a credit counselor.
Function
A credit counselor's exact duties depend upon individual cases, and on what the company in question is set up to do. Their most important duty is negotiating better terms with your creditors: setting up a viable repayment plan that gets the creditors what they need in terms that you can survive with. They will also work with you to manage your money better, first by reining in excessive spending habits and then by structuring a budget that lets you live within your means while still paying down your debts. Some credit counselors also work for loan agencies and banks, helping customers to understand their obligations and make sure that their company gets a return on its investment.
Significance
Good credit counselors look past the immediate circumstances, towards their customers' long-term financial health. Customers usually come to them in moments of crisis, and don't look beyond the immediacy of their debts. A credit counselor should obviously seek to pull their customers through such "tight spots," but also to refocus on the bigger picture and to practice more responsible financial habits once the immediate problem has passed.
Warning
Legitimate credit counseling has been undermined in the last decade or so by fly-by-night operations with deeply unscrupulous practices. Watch carefully for them when seeking out a credit counselor. Generally speaking, you want a credit counseling agency which is recognized by the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies, which addresses your money responsibly and which doesn't make promises that sound too good to be true. Avoid companies which charge a big up-front fee--that only works to increase your debt--or which takes your initial payments themselves rather than passing it on to your creditors.
Considerations
When approaching credit counselors, know ahead of time what questions you should ask. Find out specifically what services they offer--do they just seek to educate you or will they help you negotiate with creditors and directly consolidate your debt? Ask how they calculate their monthly fees and whether or not you will have to pay anything up front. Check their accreditation and see if they are audited annually by an independent outside source. Above all, find out if they will play straight with you about your situation. Good credit counselors will be brutally frank, will point out steps that may hurt, and will provide solid--yet plausible--time tables for helping you out of your debt.
