Submitted by: Andrew Winslow

In today’s harsh and uncertain economic times, credit counseling has become a beacon of hope for many, as debt seems to be spiraling out of control just as paychecks keep shrinking, as evidenced by a mid August report released by Sentier Research contending that after adjusting for inflation, the average household income fell 4.8% from 2009 to 2012. Obviously, the pain is felt throughout the population that has to deal with fixed debt that does not seem to shrink on an equal basis. This feeling of helplessness is further enhanced when the Federal Reserve announced during the summer that median household net worth has also dropped a stupefying 39% in barely 3 years, from $126,400 to $77,300 by 2010.

Horror stories abound on the Internet about credit counseling running amok, with disreputable companies charging debt stressed consumers substantial upfront fees without corresponding results. However, recent government regulations have more or less cleaned up the industry, although bad apples still exist, therefore careful and extensive research is strongly recommended, as numerous online sources can be tapped into for information, the most popular of which is the Better Business Bureau.

A perfect example is Arizona based A.W.D. which charged a San Francisco couple $1,295 for credit card help services by calling them out of the blue and promising to reduce credit card debt by several thousands of dollars. After a few months of inactivity, ConsumerWatch contacted the company and managed to get the upfront fee refunded, a happy ending for the couple, but a rare occurrence. Please note that most states have laws capping upfront fees to $50 for debt reduction services.

A survey conducted for the National Foundation for Credit Counseling reveals some startling statistics:

[youtube]http://www.youtube.com/watch?v=m22WnlWIfE8[/youtube]

* Only 43% of consumers have a budget and know how much they spend every month

* 33% of consumers, or more than 77 Million people, do not make timely payments so far in 2012, compared to 28% in 2011

* 40% are saving less this year as compared to last, and 39% do not have any retirement savings

* 55% did not review their credit score and 62% did not review their credit history

* 39% continuously carry credit card balances, 15% have applied for new credit, up from 10% in 2011, and 7% have been rejected, compared to 4% in 2011

The heart wrenching part of seeking debt consolidation services is that consumers only do so when they are almost at the brink of insolvency, whereas the process can take months to produce results, especially when trying out different services.

Free online credit counseling is available from a vast array of sources, including some non profit organizations, and even one tight month may be reason enough to consider the option before things get out of hand. Free online personal finance tools are also readily available for use in budgeting and can become early signals of trouble ahead.

As secured creditors do not have the incentive to renegotiate previously agreed to terms, credit counseling mainly applies to unsecured debt, namely credit cards or store cards, and rates and/or balances can be renegotiated to better suit present circumstances without hurting credit scores.

When credit counseling is the only option left, beware of “fair share” arrangements between counselors and creditors, as the “fair share” is money that could have gone to paying off debt instead of going into the pockets of credit counselors. This rate used to go as high as 15%, but has recently settled into the 6% range, still too much.

About the Author: Andrew is a writer for a non-profit agency that helps families escape financial troubles through credit counseling, credit debt consolidation and education programs

creditguard.org/credit_card_debt.html

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