Financial Counseling Services

Individuals often choose financial counseling services as an appealing alternative over filing for bankruptcy in a severe financial crisis. Overdue bills and surmounting fees and interest payments can quickly become overwhelming. Similar to a debt consolidation program or filing Chapter 13 bankruptcy, this special type of counseling program can help consumers caught in a debt spiral that is spinning out of control without the repercussions often present with the other two options. Taking a holistic approach to debt management, financial counseling services walk individuals through establishing a debt recovery plan and provide educational resources to help them continue to establish good credit after leaving the program.

Consumers in debt often seek out financial counseling services to manage their debt. Counselors in an eligible program have years of experience working with creditors and can negotiate with them to create a viable repayment plan for both parties. Most times, creditors prefer to work with these programs over dealing with the courts in bankruptcy proceedings. Since more of the money will be returned through such services, they are often flexible and will create a realistic repayment plan for the debtor, reducing or suspending interest and overdue charges. Counselors consolidate all outstanding credit accounts and act as a liaison between the debtor and the creditors. Like debt consolidation programs, consumers only have to make one payment to the counseling service, which is often lower than paying each creditor individually. Their counselor will then disperse agreed-upon payments to all the creditors. This debt management plan (DMP) primarily serves to get the debtor out of debt. It usually won't lower the debt owed, but these counseling agencies can reduce the amount of extra fees paid in the process and make it more convenient for individuals who are simply overwhelmed by the amassing amount of debt.

With a viable plan in place, consumers gain relief from additional debt and the stress associated with getting their finances back in order. After agreeing to a plan, creditors will put collection calls and any pending legal action on hold as long as the debtor and counseling service keep their part of the contract. Most financial counseling services provide assistance for multiple types of credit issues that can put pressure on a consumer. Many plans also include counsel for housing issues like foreclosure and high mortgages. Counselors analyze an individual's income and expenses to create an individual working budget to repay outstanding debt, establish a savings plan, and stay on track after the program has ended. In extreme conditions, referrals are made to other social agencies and resources that can step in and help in the entire process to prevent further financial crisis. This education is meant to solve the long-term problem, not just temporarily fix a short-term issue.

The Bible provides a great example of avoiding such crisis situations. The book of Genesis tells the story of Joseph. God gave the Pharaoh of Egypt a dream of seven fatted calves followed by seven lean calves. Joseph translated the dream as a warning that seven years of profit would be followed by seven years of famine. The king believed him and put him in charge of not only getting his household in order for these upcoming events, but he put Joseph in charge of getting the whole country's finances in order. Joseph made a financial plan. During the seven years of plenty, he gathered up as much food as he could and stored it in preparation for what was to come. "And the seven years of dearth began to come, according as Joseph had said: and the dearth was in all lands; but in all the land of Egypt there was bread." (Genesis 41:54) Financial counseling services help consumers do just that - to create a plan to save in times of plenty for times when higher bills, layoffs, or unexpected expenses threaten to overtake them.

However, some consumers are concerned with how such programs might effect their credit. While financial counseling services do not report to the credit bureaus, creditors may place a statement on file for the duration of the program, not permitting the debtor to borrow any further funds until the current debt has been reconciled. This practice varies among creditors. Some see counseling as a positive step to repaying debt. Others are suspicious and believe enrollment to be a sign of poor financial management overall. Regardless, statements of enrollment are usually removed once the individual has completed the program. Even with creditor statements, overall credit scores are not affected. If anything, enrollment in such programs improves credit scores. Payments are being made on time and there are often no further defaults listed. Although scores will take time recover, consumers often benefit from enrolling in financial counseling services in the long run.

Like any financial recovery program, individuals must be cautious in choosing the right service. The Federal Trade Commission (FTC) recommends interviewing at least three financial counseling services and seeking referrals over media advertisements before making a decision. Another good practice is to confirm that the agency is a member of one of three main national trade organizations: the American Association of Debt Management Organizations, the Association of Independent Credit Counseling Agencies, or the most popular National Foundation for Credit Counseling. It is also important to check fees and how they are collected. Even non-profit agencies charge for their services, although their fees are usually less than for-profit agencies. Some consider take the first consumer payment as a fee. Others take a percentage of each collection, meaning that creditors receive less than expected. However, finding a complete holistic program that focuses on education as well as repayment shouldn't be too hard to find. Each of the trade organizations have hundreds of agencies to choose from.

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