The Truth behind Debt Counseling

Debt counseling can help people get out of their debts. Many people who have so many liabilities and obligations to pay become overwhelmed that they do not know how to handle their financial difficulties anymore. They make wrong decisions that may worsen their situation. A good debt counseling agency however would be able to assess the situation holistically, provide solutions and come up with both a budget plan and a repayment schedule.

There are debt counselors that are more superior to others. There are those that charge for initial consultation fees while there are those that convince clients to agree to a debt management plan (DMP) even if it is not needed. This is a debt consolidation plan where the client pays one payment per month to the agency and the latter shall pay all the creditors of the client with the money. Clients must avoid such kinds of agencies.

There are debt counseling agencies that do not charge initial consultation fees at all. They have certified and trained counselors who are not sales people. Such agencies will assess a client’s financial situation and then formulate a budget plan for him or her. They may suggest a DMP if it is necessary or other options such as debt settlement or bankruptcy, depending on the situation. They also offer trainings and workshops on how to stay out of debt and ways on how to make a budget plan. Before a client chooses a debt counseling agency, it is best to look for one that is personally recommended or through the website of the Better Business Bureau as there are agencies listed there with excellent ratings.

A good debt counselor will inquire about a client’s income, household expenses, debts, monthly obligations and root cause of his financial worries. A client must therefore be ready for such a conversation as this can be uncomfortable. If the client needs to go through a DMP, he will therefore have to adhere to a very strict budget. He will also have to pay the debt counseling agency around $50 every month for his unsecured debts as the agency may bargain with creditors to lower down their interest rates and fees.

There are times that debt counseling will not work due to the client’s attitude. Statistics say that 1/3 of those undergoing debt counseling will manage their debts well after one session. The second 1/3 will not be able to handle their debts due to addictive vices or other problems thus they need to go to social services while the last third need to have a DMP. Forty-five percent of those who enroll in DMP drop out.

Those who can benefit from debt counseling are people who cannot pay their credit cards’ monthly minimum, who receive calls constantly from lenders, creditors and collectors and who are always late in paying their bills. Persons who have so much debt and cannot pay within five years should not go for debt counseling as agencies would usually recommend filing of bankruptcy instead.

These are the truths behind debt counseling and who are qualified to avail of it.