Why Financial Credit Counseling Is So Important

Before the latter part of the last century commercial financial credit counseling didn’t exist. The benefits of educating consumers about money management wasn't a priority until after World War II. After World War II, the return of millions of veterans and a booming economy of consumer manufactured goods placed more emphasis on credit.  It wasn’t until these first consumers living on credit, and  got into financial trouble that credit counseling companies were created to help debt relief.

How the Plan Works

Many financial credit counseling services offer debt management plans designed to help individual consumers work out a debt repayment plan with all their creditors. Since creditors are making attempts at collecting the consumer debt, they welcome financial credit counseling companies to help arrange, with debtors, acceptable payments in return for a fee that usually ranges from 4 to 10 percent of the collected amount.

Why It Works

Financial credit counseling is an important service because many consumers have fallen into a debt trap. Through debt management services, individuals facing monthly financial obligations, can gain invaluable assistance with debt free living. Counselors talk with a consumer’s creditors arranging realistic monthly payments administered through the debt management counselor. These counselors arrive at realistic payment structures that can sometimes result in up to a 20 percent reduction in the outstanding amount.

Furthermore, with the use of a financial credit counselor, interest rates are either reduced or frozen and other penalty fees are eliminated allowing consumers the opportunity to reduce the principal amount. An additional advantage is improving an individual’s credit rating by re-aging the debt structure. Usually, an individual’s credit rating starts improving after three consecutive monthly payments are delivered. The credit counselor will monitor and manage the appearance of an upwardly moving and improving credit rating making sure the consumer’s creditors faithfully report the continuous payment history. It will, however, take considerable time for earlier credit history blemishes to be removed from an individual credit report.

Not All Is Well

The credit counseling industry is not without critics. Unfortunately, like other industries, the credit counseling segment does experience unscrupulous and unethical members that give the industry a bad name. Some critics claim these counseling services exist to benefit creditors, acting as their collection agents. There are many opponents, including bankruptcy proponents,  that claim that through legal resources, consumers can find debt relief and a new start without having to pay outrageous fees. The experts of the field typically point to the credit industry high rates.  The rates are called "legal usury" because the high interest rates associated with credit, compel continuous indebtedness.

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