Credit Counselors

PEOPLE who have trouble composing a debt repayment schedule within a workable budget would do well to seek the guidance of a nonprofit credit counselor. This professional will be sympathetic but firm. A counselor will ask you to provide intimate details about your total monthly income and expenses, a list of your outstanding bills and copies of any correspondence you have had with creditors about debts and loan. He or she will want to know whether you have been dunned by creditors or threatened with legal action, or whether a creditor has sought to have your pay garnished.

Next, the counselor will get in touch with your creditors. Counselors have more clout than you might, since creditors often prefer to deal with professionals. Your counselor will intercede on your behalf to reduce and stretch out monthly payments on debts while you organize your finances. The creditors may be in the mood to hold off for a while because the last thing they want is for you to default and go bankrupt. They want to be sure to be repaid, and later is better than not at all. Sometimes, a counselor can even knock down the total balance due. Once you have renegotiated the debt terms through your counselor, you make your monthly payments to him or her. Your counselor then manages the debt for you.

Debtors who pay off their debts with the intervention of a counseling service are on the road to rehabilitation. But the path will be rough at first. Many creditors will reject you because of credit bureau reports of your need for counseling. But a good word from your credit counselor can help you reopen department store charge accounts and maybe even finance a new house. Victor Schock, executive director of the Credit Counseling Centers of Oklahoma, in Tulsa, reports: "In our local area we have had great success with mortgage companies by writing letters of recommendation for successful clients."

Before you approach any credit counseling agency for help, find out whether it is a nonprofit clinic or a for profit company or simply a bill collector subsidized by your creditors. There are some 400 nonprofit credit counseling organizations across the country. They are almost always better than the for profit organizations, which charge much more. The National Foundation for Consumer Credit will direct you to nonprofit services in your state.

About one third of the nonprofit groups provide free service, and no one is turned away even by those that do charge a fee, currently $16 to $20 a month until the debts are repaid. All groups, however, ask creditors to contribute 7% to 15% of the monthly payments the counselors make on their client's behalf.

The American Association of Credit Counselors represents privately owned, for profit companies. Twenty five states specifically prohibit such operations. Where profit making credit counseling is legal, state laws usually limit fees. They average about 12 1/2% of the debt that a company manages for you, prorated over the term of your contract.