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Credit and Debt Counseling

by Dorota Trzeciecka on January 4th, 2010

Before you choose a credit counseling agency off the web, you must be aware that while most are legitimate, some are not.  How do you tell the difference?  Look for an agency that has been approved by the office of the US Trustee to provide credit counseling to bankruptcy filers. 

How Credit Counseling Works

To use a credit counseling agency to design a repayment plan for you, you must have a steady income.  A counselor will contact your creditors to let them know that you are seeking assistance and need more affordable payments and more time to pay.  Based on your income and your debts, the credit counselor and the creditors will determine the amount of your monthly payment.  You then make one payment to the credit counseling agency to be distributed among your creditors.  The creditors then return a small percentage of the payment as a commission to the credit counseling agency for providing the counseling services.  Many creditors will agree to reduce interest rate to make your payments more affordable, waive late charges or accumulated interest.  Some won’t, and will only agree to waive the late fees and the opportunity to reinstate your credit if you successfully complete the credit counseling program.  

Pros and Cons of Credit Counseling

Participating in credit counseling debt management program is a little like filing Chapter 13 bankruptcy.  But, working with a credit counseling agency has one big advantage: No bankruptcy will appear on your credit record.  On the other hand, a debt management program has two disadvantages when compared to Chapter 13 bankruptcy.  If you miss a Chapter 13 plan payment, Chapter 13 will often provide a way to make it up, and continue to protect you from creditors who would otherwise start a collection action.  A debt management has no such protection, and any of the creditors can pull the plug on your plan.  Also, a debt management program usually requires you to pay all your unsecured debts in full, over time.  In Chapter 13, you often are required to pay only a small fraction of your non-priority unsecured debts (such as credit cards and medical debts).  

To find out more about credit counseling and other bankruptcy alternatives please contact Dorota Trzeciecka at

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  • Fair presentation on credit counseling alternative. There is a very short list, however, of debt management programs that are any good (at least here in Rhode Island). Most put together an unrealistic budget and repayment plan, collect their fees up front, then act shocked 6 months later when the debtor has to quit the program to buy groceries. A good bankruptcy lawyer knows which companies are reputable and worth contacting and which ones to avoid like the plague.

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