By Ryan Levin on November 14, 2011
.jpg.aspx) If you’re in debt and feeling like you just can’t keep making payments on your accounts, you might already be considering filing for bankruptcy. Thanks to a 2005 law, though, if you’re thinking about filing for bankrupcty, you’ll have to undergo credit counseling first.1 It’s not such a bad deal though. You might find that with the help of a credit counsellor, you can get yourself out of debt faster than you think, and without filing bankrupcty.
Typically, when you meet with a credit counselor, you discuss your personal financial situation and ways you can take care of it without filing bankruptcy. That often includes developing a personal budget plan that makes room for debt payments—sometimes, the money to take care of debt payments is there, but needs to be freed up through more efficient spending.
If that’s not the case and debt really is too high for you to manage on your current income, debt counselors will help you by negotiating with your creditors to refinance your accounts. This can mean you pay a lower interest rate, pay a one-time fee that’s a fraction of what you owe, some combination of these options, or a more creative solution. These methods of paying off debt are very different, and they have different affects on your future credit score; you and your credit counsellor can discuss the options and choose what method best suits your current financial situation.
Typically, credit couseling costs about fifty dollars. Since it’s required by federal law for everyone who’s considering bankruptcy, though, you can request a fee waiver if you can’t afford the fifty-dollar fee.
When you complete debt counseling, you receive a free certificate proving that you have done so. Once you’ve got that certificate, you’re allowed to declare bankruptcy, but it’s recommended to try to take care of your debt by listening to your debt counselor’s advice without filing bankruptcy. Bankruptcy is really a last resort when even the debt management plan that you and your counselor agree on falls through, which shouldn’t happen with discipline and smart spending.
When you’re choosing a credit counselor, make sure it’s approved by the United States Department of Justice for issuing credit counseling certificates.2 You can use their website to find an approved counselor in your area.
It’s also a good idea to gather information about your options when choosing a local credit counselor. For example, some institutions might pay their members more if they can convince you to take advantage of a certain service or pay an unnecessary fee, which means counselors might pressure you unfairly into paying for something you don’t need. Fortuneately, you can avoid these kinds of practices by gathering information and making a smart decision about credit counseling—and hopefully avoid having to file for bankruptcy!
References:
1http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre41.shtm
2 http://www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm
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