If you are facing financial hardship and cannot make payments towards your unpaid bills, you can take help of credit counseling service and get out of this financial crisis.
What a credit counseling service is
If you want to manage your debts you have to enroll with a credit counseling agency. The representative of the agency will analyze your financial condition and help you to prepare a budget, so that you can save more money. He will then contact your creditors and do negotiation with them, on your behalf, so that they agree to make a repayment plan for you, on the basis of your affordability. The representative will also ask your creditors to waive off penalties towards over limit charges and late payments.
Debts covered by this service
Generally, unsecured debts are covered by credit counseling service. Some of these are:
- Unpaid credit card bill
- Unpaid rent IRS tax debt
- Student loan
- Personal loan
- Unpaid utility bills
- Unpaid medical/dental bills
- Attorney bills
Factors considered by credit counselor
A credit counselor, while rendering their service, will consider the following factors
- Your monthly income and expenditure
- Number of debt accounts you currently have
- Total amount of outstanding debt balance
- Interest rates for the each of the debt account
- Account which has the minimum debt balance
- Minimum amount of payment for each debt
- Other expenses like medical bills, insurance, tax, etc.
Types of credit counseling
The four main types of credit counseling are:
1. Consumer credit counseling: These are the traditional counseling services, which will charge you a fee against their service. They will analyze your financial condition and help you to prepare a budget. On your behalf, they will negotiate with your creditors, to lower the interest rate and to waive off penalties towards late payments and over limit charges.
2. Bankruptcy credit counseling: According to the new federal bankruptcy law, introduced on 17th October, 2005, it is mandatory for you to undergo a credit counseling session at least 6 months, before you can file for bankruptcy. This is called pre bankruptcy counseling.
You can have this counseling session over a phone, through online or in a face to face meeting. You should be totally honest with the counselor regarding your income, expenses and the total debt amount and other financial problems. The counselor will analyze the situation and advise you on getting a proper debt solution. The counseling session can last from 60 to 90 minutes. You have to pay a fee of $50 to the counselor. However, if you cannot afford it, you can request the agency fro a fee waiver before the starting of the session. After the completion of counseling you should get a certificate as a proof.
You should also complete a debtor education course to have your debts discharged. The session will educate you on how to prepare a budget, how to use your credit wisely, how to manage money, etc. The post filing counseling session lasts for 2 hours only. You need to pay a fee of $50-$100. You will also receive a separate certificate for completing this session.
3. Christian credit counseling: Basically, Christian credit counselors work in the same way as other credit counselors. But, in addition, they give importance upon Christian values that the Bible does not permit you to owe any money and also does not allow you to serve two masters simultaneously. According to the Biblical view point, only the Christ can be your master, so if you owe money to anyone, the creditor also becomes another master. This is absolutely not permitted in the Bible. A Christian credit counselor will help you become debt–free by creating strategies from the Biblical view point. Though the name suggests Christians, non Christians can also take advantage of this service.
4. Non-profit credit counseling: There are many counseling agencies that claim to be non profit companies to attract customers. These companies will charge you high fees for rendering their services. So, prior to enrolling yourself with them, you should verify its non-profit status. You should ask the company to provide you a proof of its 501(c) (3) IRS status, of being truly non profit. The agency will charge a lower fee than the traditional agencies for rendering their service.
Depending on your needs, you should choose the type of credit counseling service, which suits you the best. You should check with the BBB for reliability and authenticity of the agency.
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