As consumers struggle to pay for necessities like food, housing, gas, and electricity, they often are faced with deciding between paying for those necessities and paying their monthly payments for credit – based debt. In some cases, consumers are paying only the minimum payments on their credit cards and other installment debt, and in other cases, consumers are making late payments. In the worst case scenarios, consumers are making no payments at all. Faced with extreme measures like bankruptcy, many consumers are turning to debt management companies for help reducing or eliminating their debt.
If you are a consumer struggling to manage your debt, you may be wondering what your options are in terms of debt management and / or counseling. Debt management and credit counseling are not the same, so to make a decision as to which is right for you, you will need to understand what each process entails.
Consumer Credit Counseling
Consumer credit counseling is a process designed to help consumers understand why they are in debt, help them get out of debt, and help them stay out of debt. This process, according to many financial experts, is the best way to manage debt because consumers leave the process with a better chance of staying out of debt than they would if their goal was only to eliminate debt.
Consumer credit counseling takes a lot of effort on the part of the consumer, and understandably so. With an end goal of teaching the consumer what is involved in proper money management, consumer credit counseling is as much about insight, education, and responsibility as it is about reducing and eliminating debt. Although the consumer may be focused on getting out of debt, the process of consumer credit counseling may produce better financial consumers.
In general, consumers who seek out the services of a professional credit counselor is a consumer dedicated to a financial future free of debt. To begin the process, most credit counselors require that the consumer complete a detailed questionnaire that includes detailing spending habits, overall sources of debt, and income. Either over the phone or at an in-person appointment, the credit counselor then works with the consumer to develop a plan to become debt free.
In some cases, consumer credit counselors will require that, as part of the debt elimination / reduction process, the consumer commit a certain percentage of his or her income to pay existing credit – based debts. This percentage is typically based on what other obligations the consumer has such as the need to provide for family members and make other payment obligations. In other cases, the consumer credit counseling process is based on the amount of expendable income that the consumer can work into his or her budget.
In nearly all cases, consumer credit counseling involves teaching the consumer how to manage money. This occurs by examining all expenditures and ranking those expenditures in terms of their necessity. For instance, during the credit counseling period during which the consumer has committed to becoming debt free, a counselor may require that the consumer eliminate all unnecessary spending. After all, in many cases, it is such unnecessary spending that has resulted in a pile up of debt. Consumers, even those faced with rising debt, often continue to spend money on eating out, going to the theater, travel, and other non-essential spending. Consumers who commit to a debt reduction or elimination program through the consumer credit counseling process must also commit to cut all non-essential spending. Once the goal of eliminating and / or reducing all debt has been achieved, the counselor works with the consumer to develop a budget that makes sense
One of the primary differences between the services provided by debt management companies and consumer credit counselors is that consumer credit counselors challenge consumers to make hard choices about how they spend their money and how committed they are to becoming debt free. Consumers who are not prepared to make those hard choices may not be good candidates for a consumer credit counseling program. Other choices for those consumers may be debt management companies, self-management of the debt reduction process, and even, in extreme cases, bankruptcy.
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