Credit counseling, also referred to colloquially as ‘Debt counseling’, is a form of financial counseling that typically helps indebted people handle and deal with their financial issues. It also refers to counseling for people who require financial loans and assistance but are not sure if they are eligible for it and if they are, then how to go about acquiring the same.
For many people, organizations providing credit counseling are their last lifeline and may well save them from absolute insolvency, economic failure.
Credit counseling works to educate individuals by empowering them though various tools, such as budgeting and education, so as to help them get rid of their debt burdens.
As a general rule, such counseling is undertaken by “credit counseling agencies’ that have been hired by the indebted parties to commence and eventually successfully close negotiations with the creditors on behalf of the financially solvent party. These credit counseling agencies ensure that their clients are not proclaimed defaulters due to their absolute inability to meet the minimum payments of the amounts they owe to their creditors.
Such agencies have been contracted by the indebted parties to work for them and look after their interests and so help relieve them of the clutches of the ‘debt traps’ they may find themselves in.
These agencies may be broadly defined into two different types.
Non Profit Organizations or NPOs
These organizations do not levy any service charges on their client (the debtors) nor do they require any fees for their assistance. Most of the time they get funded by the creditors.
Commercial Credit Counseling Agencies
They are employed to work on behalf of the indebted party for a pre-determined financial remuneration. They charge a fees and represent their client 100%
