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"Never spend your money
before you have it."

Thomas Jefferson
How The Credit Counseling Business Works

The National Foundation for Credit Counseling is an umbrella organization that oversees credit counseling and debt consolidation in the United States. The foundation itself does not offer counseling or provide debt consolidation services, but they do have members who offer these services. In fact, most members of the National Foundation for Credit Counseling can offer you help with debt consolidation, usually for a reasonable fee. Some members may charge low or even no fees, but it is reasonable to expect to have to pay for their expert services.

Credit counselors who are accredited by the National Foundation for Credit Counseling (NFCC) are certified and will likely advertise themselves as "certified" credit counselors. That's because anybody can call himself a credit counselor, but a certified credit counselor is recognized by the NFCC as having met certain requirements (to enter) and maintain certain levels of service (to remain in good standing).

If you want to regain your financial health, certified credit counselors are an important part of the picture. But how do these counselors offer such services if they donít get paid much or even at all?

Itís a little bit roundabout, but here is how it works. Companies that extend credit, particularly credit card companies, pay credit counselors. They donít do this because they are so philanthropic, they do it out of self interest.

Every month, thousands of people declare bankruptcy. When a person goes bankrupt, his debts become a big question mark. Basically, the debts are prioritized and some get paid and others donít. Credit card companies usually end up getting burned in a bankruptcy, meaning they donít collect anything against the balance owed.

Thus, if a credit card company can help people stay out of bankruptcy, itís more likely to get paid. Thus, credit card companies and other companies that extend credit help support credit counseling services.

The object is that the debtor should pay the creditor the full amount owed. In actual fact, thatís what everybody would like. Most people want to pay their just debts, and certainly everybody who lends money would like to get paid back.

Creditors are willing to help finance credit counselors to encourage that scenario.

When you go to your credit counselor, the first thing they do is look through your paperwork (bring in bills, pay stub, a list of what you owe, and a list of assets). They'll ask you some questions and offer you some preliminary advice.

That seems pretty basic, but the fact is that this basic information is sufficient for about one third of their clients to go away and sort out their debt problem on their own! In other words, in many situations, the counselor can give the person enough insight and tips that the problemówhich once seemed overwhelmingóbecomes manageable.

In fact, for a lot of people, just knowing what to do and having a game plan is all the help that is required.

Credit counselors also provide much-needed advice on how to manage money. Most of us can benefit from financial education in terms of reducing our spending, learning to invest, and being able to budget.

Without these tools, even if you can dig your way out of debt today, you'll just fall back into your old patterns (and your old debt) tomorrow! There is no point in staying on the debt treadmill. Thatís why education is such an important part of what credit counselors offer.

In some cases, the credit counselor may recommend a debt consolidation loan and help you get it. Some counselors work for companies that offer debt consolidation programs, others may point you to outside programs they recommend.

In a few cases, your situation can be so severe and options  so limited that you need a Debt Management Plan (DMP).

A DMP is better than bankruptcy, but itís worse than just about any other debt consolidation solution. One problem with a DMP is that it red flags your credit report. (It wonít do as much damage to your credit report as bankruptcy, but itís still bad.)  But a DMP is a valid and legitimate way to work your way out of debt. It's just not a method that you should take on until you've exhausted other approaches.

Of course, this is why you go to a certified credit counselor.  They look at your individual situation to determine what is best for you. In fact, their ongoing certification depends on what they do for the people they counsel. If they advise you to do something that harms you or makes your situation worse, they risk losing their accreditation. Thus, there is a lot of incentive for certified credit counselors to do the best thing for you.

To find a certified credit counselor in your area, visit the website of the National Foundation for Credit Counseling (NFCC.org). You'll find it offers you a way to type in your zip code and retrieve a list of certified credit counselors in your area.

Don't hesitate to call these certified credit counselors and either chat on the phone or go in for a preliminary interview. While certified credit counselors meet and uphold basic standards, you also want to work with the counselor with whom you have a good working relationship of mutual trust and respect. It's a little bit like finding a good dentist or a great hairdresser.

Fortunately, there are plenty of certified credit counselors working in the U.S. that it should not be difficult for you to find the person who can help you navigate your way out of debt and into financial freedom.

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