Credit Counseling

Here's what you need to know.

Consumer credit counseling -- "CCC" -- is for people who have too much debt and need help developing a plan to improve their financial situation.

You may need "CCC" if...

You are stressed out and overwhelmed by your financial situation.

You have negative cash flow each month.

You cannot make your minimum payments each month.

A "CCC" agency can help you by looking over your entire financial situation and offering advice as to how you can improve it.

They can also act as a third party negotiator to work with your creditors in developing a payoff plan that can work for you and them. This type of help is referred to as a debt management plan or a debt repayment plan.

Creditors stand to lose most or all of the debt that you owe them if you declare bankruptcy. This is why they are willing to reduce fees, lower your interest, or even accept a smaller amount than you owe.

The closer they think you are to bankruptcy the more lenient your creditors become.

Some unethical companies use this to their advantage and actually encourage you to destroy your credit so that your creditors are basically blackmailed into accepting less than you owe. If they don't you will declare bankruptcy and they will get nothing.

There are several problems with that.

First, you will be taxed on any principal reduction of the debt as income. (if your debt was 10k they accepted 4k and charged off 6k as a loss, you will get taxed on the 6k as income)

Second, your credit is trashed, and while credit repair can help, you are basically going down the wrong path.

Third, it's unethical.

Credit counseling may actually damage your credit!

The fact is, most lenders, especially mortgage lenders, see it as a negative thing. To them, it's a sign that you got in over your head and needed help.

Your score may not go down, but your credit report is more than your score.

Do not let this dissuade you if you need counseling!

The affect on your credit could also be a positive one because it can help you get back on track with many other items.

It all comes down to solving the biggest problem first.

Click here for Credit Repair, (not credit counseling)