Debt Management Counseling

Court-ordered debt management counseling is one method of offering consumers who consider bankruptcy a less drastic alternative. Filing Chapter 7, 11, or 13 petitions for consumer debt protection relieves individuals and businesses from some indebtedness, but the damage done to creditworthiness can be substantial and filings remain on consumer reports from seven to ten years. In recent years when debtors petition, the Federal government requires them to complete a course at an approved consumer credit counseling agency within six months prior to filing. Petitioners attend one-on-one or group sessions which offer instruction on how to better manage personal finances. The hope is that after attending counseling, debtors may be deterred from filing. The Federal government is concerned that the rising number of cases in the United States is a serious indicator that American consumers are failing at balancing the family budget. And a failed family budget eventually leads to a failed national economy.

The importance of debt management counseling cannot be overstated. The Bible warns against the woes of financial bondage. "The rich ruleth over the poor, and the borrower is servant to the lender" (Proverbs 22:7). Poverty has no respect of persons and almost anyone from any socioeconomic background can experience great lack which ravishes the psyche and destroys the soul. A stock market crash can wipe out the fortunes of the rich and famous overnight and bring a nation to its knees. When high interest rates, escalating prices at the pump, and increased debt-to-income ratios drive working consumers to the welfare rolls, it becomes a national concern. But consumers who seek professional help to overcome indebtedness can adopt responsible spending habits and learn how to handle credit instead of credit handling them!

The key to successfully overcoming debt before it overcomes you is to first, face up to credit card addiction and irresponsible financial management. Irresponsible consumerism is just like alcoholism: until an addict admits that there is a problem, there can be no solution. But professional debt management counseling agencies can help addicted consumers see the error of their ways and salvage credit before resorting to the bankruptcy courts. Financial counselors assess a consumer's total assets and liabilities and make satisfactory arrangements with creditors to pay off accounts in smaller, manageable increments, a process called debt negotiation and reduction. Creditors are usually confident that a workable alternative financial plan will eventually decrease outstanding balances without having to resort to court-enforced collections. Proficient debt management counseling includes convincing creditors to work with debtors rather than filing wage garnishments, lawsuits and judgments, which further mar a consumer's credit report.

Desperate debtors may feel that filing bankruptcy is the only recourse to stem the tide of harassing collection phone calls and threatening letters, but counselors can stop the madness. Agents address each issue and handle every correspondence, alleviating clients from hassling with irate collectors. Hiring a reputable and reliable debt management counseling agency is like having a big brother to fight against the neighborhood bully. Little brother might not be totally innocent; but an older, wiser sibling can keep the bullies at bay until the conflict is resolved. Most creditors respect the fact that debtors are responsible enough to engage the services of a debt management agency, and will usually comply with efforts to clear up past due accounts.

Borrowers whose money woes have reached the point of no return can still avoid bankruptcy. Enrolling in court-mandated debt management counseling classes can help debtors devise repayment plans, discover ways to eliminate delinquent accounts one at a time, and teach debtors how to start making wiser buying decisions. Professional financial managers suggest tackling overdue bills before late fees and penalties make it almost impossible to catch up. And when monthly payments begin to fall in arrears, counselors suggest immediately contacting creditors to make alternative arrangements. Some banks and finance companies will appreciate honesty and work with consumers to defer or re-structure payments placing past due amounts at the end of the contract, or reducing monthly notes to prevent foreclosures and repossession and avoid bankruptcy.

Debt management counseling companies may also propose debt consolidation to avoid going to court. Under a workable plan, miscellaneous smaller delinquent accounts are grouped together. The debtor borrows enough money from the finance company to pay off these smaller debts, reducing the amount owed into one easily manageable monthly payment. Consolidation is usually an option when outstanding debts total less than $15,000. The process of grouping smaller accounts eliminates paying several different finance charges singly each month; and delinquent accounts are wiped clean. Most types of installment contracts can be consolidated with the exception of home loans and delinquent tax payments.

As a last resort, debtors who own a home may consider refinancing, or taking out a second mortgage, to pay delinquent debts and satisfy creditors instead of declaring bankruptcy. Refinancing may afford borrowers an opportunity to get out from under a note with higher principal and interest payments than the secondary mortgage. An existing lender may be willing to help homeowners save their home and credit by offering more manageable terms. Online and local lenders offer attractive options for homeowners seeking to reduce home loan payments and free up some extra cash to pay off bills or improve and upgrade properties to increase marketability. Owners should consult a financial planner, banker, or counselor to determine the best course to take. Once consumers undergo debt management counseling, there exists a small window of opportunity to determine whether filing a Chapter 7, 11, or 13 bankruptcy is advisable. Armed with consumer credit training and hopefully, a new outlook on personal money management, debtors are better equipped to handle indebtedness and face creditors with some viable options.

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