Credit counseling is a practice which involves educating shoppers on how to manage their finances, more so, on how to avoid being indebted with inveterate liabilities. This course is best delivered under debt management. The aim of this action is to liberate the client of debts.
This system is like an arbitration process, where the parties involved come together to find a solution to the outstanding amount that is due in payment. The advisor outlines the conditions that the creditor has set, and together the advisor and the consumer come up with a strategy of how to settle it.
On agreeing to a strategy of clearing the debt, the lenders proceeds to modify the accounts of the consumer, to the agreed charges. The changes to the account involve combining all the payments to a single account, which is to be paid on a periodic duration of say monthly. The beauty of this agreement is that, the total amount decreases by a certain significant percentage.
Another feature, of the debt management program is the fact that the rates charged are reduced marginally. This is a strategic move, which is aimed at recovering as much debt as possible. The client is assured of being financially freed from debts, after a considerable duration of time, once they enroll for the plan.
On sticking to this financial strategy, the consumer gets an opportunity to redeem their credit worthiness. This comes about when the debt collector has seen commitment by the debtor to offset the outstanding balance. Once convinced, the creditor may update the status of consumers account so that the current activities may be reflected.
Such a plan may be seen to benefit the debt collector, this is because it normally extends the period in which the creditor can take a legal course to seek compensation. However, this service is majorly offered on good will. The institution involved are; government bodies and consumer alliances.
It is imperative for the consumer to only engage in this plan after being well advised. This is why there is need for a debt counselor. The advisor oversees a number of issues such as, acting as the link between the two parties involved. He also analyzes the financial situation, in order to ascertain that the course of action taken is legally acceptable. Administrative duties are also enlisted in this docket.
A number of agencies that specialize in this trade have come up. They are however regulated by an umbrella association of the same trade. The umbrella board ensures that all cases are carried out while they meet legislative policies.
A lot of credit counseling agencies are in more than one trade organization. However, not all credit counseling agencies belong to a trade organization, nor are they required to do so. There are those who argue that this financial move is fraudulent since advisors are deemed to be partisan to the debt collectors. This conflict of interest is brought by the fact that their fees are met by the creditors. However, the credit counseling industry is mandated to serve both parties fairly.