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Credit counseling agencies have many motivations. Make sure one of them is helping you.
As we have written elsewhere, this is a busy, busy time for the credit counseling industry. The industry was doing pretty well in the early part of the decade when the economy was in trouble and many people were encountering financial problems. But things have really picked up since the passage of the Bankruptcy Abuse and Consumer Protection Act, which went into effect in late 2005. That law, passed enthusiastically by Congress, makes it mandatory that anyone who wishes to file for personal bankruptcy must first seek out credit counseling.
The plan is laudable in that many people don’t know how to handle money until it’s too late. Once you have $50,000 in credit card debt and a $20,000 income, you need some help. Credit counselors can do that, and a good one can help you manage your debt and give you some assistance that will keep you from having such severe problems in the future. A bad one, on the other hand, can make your already bad situation worse. Which is which, and how can you tell?
Here are some good things a counselor might suggest:
- Looking over your finances for the last several years to see where things went wrong. A business gone bad? A drug problem? Compulsive shopping? Simply spending beyond your means? These things need to be documented.
- Set up a budget. Help you establish a strict set of money spending guidelines so that you do not continue to spend more than you have.
- Look over your options. Can you pay your way out of this situation? If you can’t, could you do it with a bit of debt restructuring? Sometimes counseling agencies can work with the credit card companies to establish somewhat more favorable terms.
- Will they suggest bankruptcy? It’s a last resort, to be sure, but sometimes it’s unavoidable. Watch out for any counselor that suggests that they never steer anyone to bankruptcy.
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