Debt counseling
Debt counseling is a process of educating consumers on how to manage debts and to avoid non-repayable debts. Debt counseling is also used to assist consumers in developing debt management plans (DMP) for repaying their debts or loans. Debt counseling helps the consumers to evaluate their repayment capacity and to choose the right type of debt or loans.
History of debt counseling
Debt counseling services cropped up in United States in 1951, following the creation of The National Foundation for Credit Counseling (NFCC). The objectives of these services then, was to increase the awareness of consumers on debt services and to help them to avoid bankruptcy, by carefully managing their debts. In 1993, a group of debt counselors, who offered debt management services over phone, formed the *Association of Independent Consumer Credit Counseling Agencies (AICCCA)*, which eventually became a competitor to NFCC. Initially, many organizations offering Debt counseling, avoided the *telephone business model* put forth by AICCCA, since they believed that face-to-face approach was more effective in debt counseling. But with the developments in technology many agencies started using the *telephone business model* in their large call centers, to service a larger population of consumers.
Many debt counseling organizations in United States are not members of large trade organizations, since they are not required to be. After the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act, in 2005, all consumer debtors, who seek to file bankruptcy in Unites States, must complete a counseling session with a debt counseling agency, in the 180-day period preceding the filing of bankruptcy. Moreover, they are also required to complete a post-filing debtor education session with a counseling agency, which ensures that they finish the bankruptcy process properly and discharge their debts.
Growth of debt counseling services in Unites States
Debt counseling services in United States has grown significantly in the last few decades, as their popularity grew among consumers. Creditors wanted all their consumers to avail the debt counseling services, as it helped the debtors to understand their credit situation and to manage their money more efficiently. As the debt counseling agencies grew in United States, so did the complaints on them. In the 90*s many debt counseling agencies were criticized for abusing debt counseling services, by charging excessive fees from the consumers and offering poor service in return. Thousands of such complaints were received by the Federal Trade Commission (FTC), which filed many lawsuits against debt counseling agencies based on these complaints. FTC has provided many guidelines to the consumers for choosing the right debt counseling service.
Advantages of debt counseling
Debt counseling offers many advantages to the consumers and a few of them are,
* It helps individuals to exercise better control on their finances and to reduce debts.
* It enhances the money management skills among consumers, which could be helpful throughout their lifetime.
* Debt counseling helps to evaluate the credit situation of an individual.
* It makes the consumer more knowledgeable on types of debts
and costs associated with them.
* It is essential for consumers with huge debt burdens, as it provides a solution to their financial crisis.
* Debt counseling helps in consolidation of loans after negotiation with creditors.
* It helps consumers to understand financial issues related to their debts and how to avoid declaring bankruptcy.
How to choose a debt counseling service
Consumers must exercise utmost caution in choosing debt counseling services, to avoid any undesirable experiences in future. Here are a few tips to choose the right debt counseling service,
* Get the advice of family members or friends, who had previous experiences with debt counseling agencies. This helps us to judge the reliability of the agency.
* Research the internet to compare the services offered by debt counseling agencies and choose the one, which suits you the best.
* Try to find a non-profit counseling service, as they will spend more time with you and help you to draw out an effective debt management plan that will not put you in to problems, in future. Moreover, non-profit debt counseling services are not profit oriented and by choosing their services, you can save a few bucks in your wallet.
Many Debt counseling programs require the financial details of the consumers, for assessing their credit situation and to develop a medium to long term plan to clear the debts or to reduce its burden. Some programs might require the consumers to surrender most of their credit cards, expect a couple for supporting their business, travel or lifestyle. This is done to curb the credit card expenditures, which reduces the debt burdens on the consumers significantly. Debt counselors can work with the consumers on a one-to-one basis to improve their finances and enhance their living standards.
Even though, many criticisms surround the debt counseling industry, consumers should avail the services offered by debt counseling agencies, to get rid of their debts and to secure their financial future, as debt counseling still remains as a better option to the consumers trying to find a way out of their debt burdens.
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