Before a person can declare bankruptcy, they must participate in credit counseling. This financial advice helps people understand their budgets and pursue alternative solutions.
Credit counseling helps people avoid bankruptcy, which should remain a last resort for those suffering financial setbacks. How can credit counseling help?
Credit counselors examine spending and income
Credit counseling services exist specifically to help people manage extensive debt. Counselors help people return to financial stability through negotiation, budgeting and debt consolidation. Though many non-profit credit counseling institutions operate, they still charge a fee for their services. Non-profit credit counseling is generally cheaper than other options and will make accommodations for those with difficulty paying. Many even provide free first assessments.
Most credit counselors follow this process:
- Gather financial information: Counselors require information on their client’s finances including income, debts, unpaid medical bills, credit card balances, credit card Annual Percentage Rates (APR), and a summary of monthly expenses.
- Perform credit check: Clients will have to authorize a credit check before proceeding further. Counselors can perform “soft” inquiries that do not impact one’s credit score.
- Overview of options: After reviewing the data, a counselor will offer a few options for their client including balance transfers, consolidation loans, debt settlements, debt management programs, and finally bankruptcy.
- Professional recommendation: Counselors will present their clients with a customized recommendation based on combining a series of the above options to best suit their client’s needs. Many clients will find that strict budgeting and efficient consolidation can help them get out of their financial situation.
Those seeking financial counseling should be careful when choosing a credit counseling service. The industry is full of scammers looking to take advantage of those needing help.
Secure a lawyer before filing for bankruptcy
Those wondering if bankruptcy or credit counseling is right for them can reach out to a local attorney familiar with bankruptcy law. A lawyer can help locate legitimate credit counselors or help with the bankruptcy process.