Choose the right credit counselor

The bankruptcy system, from the federal chapter designations to helpful attorneys, to the courts, is designed to assist people and businesses in handling an overwhelming fiscal dilemma.

Still, there are alternatives to bankruptcy. And while seeking legal guidance for bankruptcy has proven to be a very beneficial course of action, credit counseling can also be a viable route toward financial stability in less severe situations.

It's important though, that you give serious consideration to choosing the right counseling organization because unfortunately, a person's financial frustrations have proven to be fertile ground on which less than upstanding groups can farm opportunities. Desperation can lead to poor decisions, so look for the following when choosing counseling over bankruptcy:

Seek out organizations that are connected professionally to a national effort or foundation that has a track record of supporting people facing economic trouble. These types of groups mandate that their members or partners abide by strict guidelines, are subject to annual audits and have a consistent track record of successful case studies.

How is the counseling group structured, from a business standpoint? Are they an actual for-profit corporation? Are they really non-profit or only masquerading as such? Do they have a board of directors with qualified, financial professionals? Also, look for evidence of annual reporting, quarterly performance reports and community involvement. The idea is to find proof that they are clearly dedicated to helping individuals with their credit problems and not just out to better their own bottom line.

Think for a moment about how you found out about the prospective firm. Were they recommended by a co-worker or professional you trust, or did you see a hand-written sign on the freeway exit ramp that promised "credit repair?" If you found them on TV, likely they are a "for profit" company, perhaps only marketing themselves as "non-profit".

Remember that it's your credit at stake and if you want an alternative to bankruptcy, it's critical that you make a good decision about who can help you. Professionalism matters, so demand it.

Along those same lines, seek an organization that offers an array of services. Simply calling creditors to negotiate settlements is not "credit counseling." Can they help you with other important issues, such as budgeting, home ownership issues, reverse mortgages and re-establishing credit after bankruptcy? Keep in mind that a "reputable" credit counselor will also offer services to help you after bankruptcy as well.

One of the more important characteristics to look for in a credit counseling organization is price structure. First off, are they upfront about what it costs? If there is a plan of repayment involved, how do they get paid? Are they upfront with you about any "kickbacks" they get and the inherent conflict of interest this causes? If you feel uncomfortable about a certain aspect of the costs, communicate your concern. Again, the best agencies will work with you and be honest about it. If you get the idea that something is being hidden or that a surprise fee is imminent, it may be time to look elsewhere. You shouldn't have to get in more debt to get out of debt.

Of paramount importance, can you afford any plan they offer? Most credit counseling outfits make their money by offering you what is known as a "Debt Management Plan". This is nothing more than a plan of repayment cobbled together using the current "deals" offered by various credit card companies. This type of plan can provide you some real savings. However, you must be honest with yourself. If, in reality, you cannot afford their plan, however much money it saves you each month, you can easily do more harm than good to your family and your future.

The problem is that the credit counseling outfits make their money from "kickbacks" they receive from the credit card companies they collect for. Naturally, this presents a very real conflict of interest. Since they get paid by the credit card companies based on how much they collect from you, it only makes sense that the credit counselor suffers from a strongly divided loyalty to you, the customer, on the one hand, and, on the other hand, the credit card companies which kick back to the credit counseling outfit the money necessary to keep them in business. Just so you know, they don't call it kickbacks. They call it "fair share". A rose is a rose by any other name.

Since there is no "kickback" if the credit counseling outfit does not sign you up for a debt management plan, the last thing the credit counselor wants to do is to perform a complete and honest analysis of your budget, if doing so would reveal the fact that you really can't afford their plan. So, buyer beware.

What you need to remember is this: A plan you really can't afford is no solution at all. So, when you look at your budget to see what you can afford, include every expense you have. Otherwise, all you are doing is fooling yourself and setting your family up for a fall.

Credit counseling can be a great solution, assuming you can find a reputable organization and you can really, really afford their plan. If not, bankruptcy may be your only option, as well as your best solution.

Unlike a credit counseling plan, which only lowers your interest rates a little here and there, the federal bankruptcy laws can actually get rid of the underlying debt. For many people, getting rid of a significant amount of debt is the only way to really get their budget back under control. Call a Raleigh bankruptcy attorney today for more information.