Resources on Credit Counseling

Credit Counseling

Credit counseling (known in the United Kingdom as debt counselling) is a process offering education to consumers about how to avoid incurring debts that cannot be repaid. This process is actually more debt counseling than a function of credit education.

Credit counseling sometimes involves negotiating with creditors to establish a debt management plan (DMP) for a consumer. A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client. Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan.

History of credit counseling
The first credit counseling agencies were created in 1951 in the United States when credit grantors created The National Foundation for Credit Counseling, or NFCC. Their stated objective was to promote financial literacy and help consumers avoid bankruptcy.

In 1993, the “Association of Independent Consumer Credit Counseling Agencies,” or AICCCA, was founded, citing a need for “industry-wide standards of excellence and ethical conduct.” This formally organized the NFCC’s competition. The AICCCA was formed from the group of counselors who favored telephone delivery of debt management programs. The NFCC was, in the beginning, strongly opposed to this telephone business model, primarily favoring face-to-face counseling as a more effective solution. Eventually, all organizations practiced both phone and face-to-face processes with some agencies using large inbound call centers driven by mass media advertising.

The credit counseling industry’s third major trade organization is its largest: the American Association of Debt Management Organizations, or AADMO.

However, not all credit counseling agencies belong to a trade organization, nor are they required to do so; there are well over 1,000 active credit counseling organizations in the United States.

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made credit counseling a requirement for consumer debtors filing for Bankruptcy in the United States. In order to meet this requirement, during the 180-day period preceding the filing of bankruptcy, the debtor must complete a program with an approved nonprofit budget and credit counseling agency. Such a program may include, but is not limited to, one counseling session conducted by phone or over the internet. In addition, a post-filing debtor education credit counseling session is required in order to complete the bankruptcy process and to have your debts discharged.

Credit Counselling is also a growing industry in Europe, both for profit-making debt management companies and charities such as Christians Against Poverty.

Excerpt of "Credit counseling." Wikipedia, The Free Encyclopedia. 23 Oct 2006, 05:51 UTC. Wikimedia Foundation, Inc. 26 Oct 2006 http://en.wikipedia.org/w/index.php?title=Credit_counseling&oldid=83156582