Credit Counseling:
Since October 2005 the
Bankruptcy Code has required most debtors to engage in some form
of credit counseling before filing for bankruptcy protection.
However, most credit counselors discourage inclusion of payday
loans in their plans and fewer still specialize in this credit
product. 100% of the debt must be paid and interest may
continue to accrue. In most cases, the debtor pays a lump sum to
their counselor each month, which is then distributed to the
creditors. About 60 percent of those who sign up for credit
counseling drop out, even when dealing with reputable, effective
debt counseling services.
“Credit counseling” can be a “good” term if counseling is
actually part of the process. A reputable credit counselor will
not only work with your creditors to reduce or eliminate
interest, he or she will also assist you in creating a
manageable budget to begin paying off the debt. Unfortunately,
credit counseling can be a “bad” term, too. The Federal Trade
Commission has received many complaints from consumers that have
been victimized by credit counseling scams. The industry is so
profitable that dozens of new companies spring up each month.
Many fail to incorporate “counseling” in their services. These
companies care only about collecting their own fees and don't
bother to adequately train their representatives, who may be
telemarketers unqualified to offer advice on debt and budgeting.
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