Credit Counseling Deconstructed
By Drew Johnson on Monday, September 24th, 2007 :: 11:29 amCategory: Drew's Corner
What is the process of credit counseling like? Well, for many it can be very helpful. Credit counseling usually involves meeting with a financial expert - during bankruptcy you must meet with a court appointed credit counselor - who analyzes your finances in detail to determine the best course of action to get rid of your debt.
Your credit counselor will look at your ratio of debt to income, including your home and car loans, to decide whether or not it is realistic to pay back your entire debt. The new bankruptcy laws enacted in 2005 make it more difficult to walk away from debt, and if a court-appointed credit counselor decides that your income will allow you to pay off your debt on your own, they will create a repayment plan for you to abide by until your debt is repaid.
Credit counselors also help their clients develop budgeting skills to prevent further acquisition of debt. The damaging weakness of many debtors is their ability to easily acquire more credit, even after they’ve come close to bankruptcy.
The ready font of easy money that comes from credit cards makes it very difficult for debtors to stop spending recklessly on their own. This is only partly their fault, as credit card companies make most of their money on debtors who are unable to repay their debts. Credit counselors provide the necessary discipline to help debtors avoid the lure of creditors who want them to overspend and pay more excessive fees.
For some debtors, reckless spending was never the problem. These are people who were struck by unexpected injury, illness or unemployment. Credit counseling will not help them deal with their debt because their problem is far out of their control. A better solution is needed for these people.
In their case, a credit counselor may suggest a more drastic course of action, like debt consolidation or debt settlement. These services go further than assisting debtors with spending and budgeting problems; they actually reduce overall credit card debt.
Author Bio: Drew Johnson is an expert in the various methods of debt reduction and has successfully reduced his own debt. Read additional articles by Drew on Debt Management, Credit Management and more.
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