Credit counseling is a service provided by organizations
that help consumers find ways to repay their debt,
generally through careful personal
budgeting and management of money.
Credit counseling (spelled credit counselling
in Canada) has two elements.
First, a credit counselor (or credit counsellor)
will help you prepare a budget, and give you advice
on managing your money. For many people that advice
alone is enough to help them deal with their debts,
and avoid bankruptcy.
Second, after you have prepared a budget, a credit
counselor can prepare a debt management plan.
What is a debt management plan?
A debt management plan is a repayment plan negotiated
by your credit counselor on your behalf.
For example, if you owe $10,000 to three different
credit card companies you could try to work out a
plan yourself, but it may be difficult to deal with
three different creditors at the same time.
In a debt management plan, the credit counselor negotiates
a plan on your behalf. They talk to the creditors
so you don't have to.
Once the debt management plan is accepted,
you make one monthly payment to the credit counselor,
who will then disburse the money to each of your creditors.
Most credit counselors have arrangements with all
of the major lenders. Since the lenders don't want
you to go bankrupt, they will often pay a fee to the
credit counselor for negotiating the plan.
If your debts are manageable, and if you can pay
them off over a three to five year period, credit
counseling may be an appropriate bankruptcy alternative