Credit Counselors Offer Advice to Avoid Debt This Christmas

The editors of credit-counselling.org have completed a survey of credit counselors, and we have compiled their top tips for avoiding debt this Christmas:

  • Before you go to the mall, make a list of who you are buying for, and what you will spend and stick to it. Impulse buying is the number one cause of excessive spending at Christmas.
  • Put some effort into your gifts. By thinking ahead, you may find that homemade gifts, pictures, or crafts are the best gifts, and often the least expensive.
  • Leave your credit cards at home. People who use credit cards spend more than people who pay by cash or debit card, because credit cards don’t feel like real money.
  • Don’t forget to include in your budget the extras, like gift wrap, shipping, and cards. As a bonus tip, stock up on all of these items after the holidays to save money next year.
  • Shop early. Waiting until the last minute makes it very hard to plan ahead.
  • Shop on the internet. Many web sites allow you to comparison shop, and they are a great source of ideas.
  • Consider a gift pool with your relatives. Instead of buying for everyone, put everyone’s name into a hat, and just buy one gift for the person you get.

The holidays are supposed to be fun, so plan early, and make the holiday season enjoyable for all.

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Credit Counseling for Home Buyers?

Reader’s of this credit counseling blog know about consumer credit counseling as a way to deal with your debts, and most people now understand that you must have mandatory credit counseling before filing bankruptcy.

Many people may not realize, however, that since September 1, 2006 residents of certain areas of Chicago, Illinois are required to have credit counseling before they are allowed to purchase a house. The law, called the Illinois Predatory Lending Database, is intended to curb predatory lending by educating borrowers before they enter into a mortgage agreement.

Before buying a home, credit counseling must be obtained from federal Department of Housing and Urban Development-certified counselors for people looking to buy homes in 10 Chicago ZIP codes who have low credit scores or whose income meets other criteria. The law only applies in certain zip codes that the state says have a high proportion of “predatory loans” and higher than average foreclosure rates.

Since most would agree that credit education is sorely lacking in North America, it could be argued that everyone should be forced to attend credit counseling sessions. However, a lawsuit is now underway, arguing that this law unfairly targets minorities. You can read more about it in today’s edition of the Chicago Tribune.

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Mandatory Credit Counseling – The First Year

In a press release issued today, the the National Foundation for Credit Counseling (NFCC) commented on the first year of mandatory credit counseling before filing bankruptcy as a result of Bankruptcy Reform legislation passed in 2005 that requires all debtors to receive credit counseling before they file for bankruptcy.

Some of their key findings:

— Through the first 11 months of the new law, NFCC members delivered 563,494 bankruptcy counseling and education sessions and issued 630,422 certificates.

— Consumers filing for bankruptcy were “upside-down” financially, with average unsecured debt being $11,599 greater than average annual income and the unsecured debt to income ratio has deteriorated since the April NFCC report.

— Mortgage delinquency was more prevalent for consumers filing for bankruptcy than for those receiving non-bankruptcy counseling.

— Phone and Internet counseling continue to be the predominant choice for services.

The full press release can be read here. Clearly the cost of providing the mandatory credit counseling is more expensive than originally anticipated, so further changes to the rules are possible. Stay tuned to this credit counseling Blog for updates as they become available.

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What’s the difference between credit counseling and debt consolidation?

This is a very common question, because a credit counseling Debt Management Program may appear to be very similar to debt consolidation. In both cases you have more debt than you can handle, so you enter into a program where you make a monthly payment to repay your debts.

In debt consolidation, you get a loan to repay all of your debts. You now have one monthly payment.

f you enter into a Debt Management Plan, your credit counselor works out payment arrangements with your creditors, and you make one monthly payment to your credit counselor, who then distributes the money to your creditors.

In both cases you make one monthly payment to deal with your debts. There are however two significant differences.

First, you must qualify for a debt consolidation loan based on your income and your credit. You may be required to provide outside security, such as a car or a house, to get the loan. The debt consolidator then lends you the money to repay your debts. With credit counseling there is no credit qualification; it is up to the creditors to accept or reject your plan. You do not need to provide any outside security.

The other significant difference is that you will be paying interest on your debt consolidation loan at the going rate, which may be very high if you have less than perfect credit. With credit counseling, you are paying a reduced interest rate. In many cases there is no interest if you make your payments as agreed.

If you have more debt than you can handle, investigate both debt consolidation loans and credit counseling, and then decide which option is best for you.

 

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What are the advantages of Non Profit Credit Counseling?

There are two types of credit counseling service: for profit, and not for profit.A for profit service exists to make a profit. This does not mean they are bad, but it does mean that their primary objective is to make a profit.

A non profit credit counseling service, as the name implies, does not exist to make a profit.

They exist to provide a service to you, and to get you back on track financially. In many cases a non-profit credit counseling agency will spend more time with you, and they will emphasize budgeting and personal money management. They will take the time to teach you the skills necessary to help you avoid financial problems in the future, which of course is the reason for going to credit counseling in the first place.

As with all service providers, meet with person who will be working on your case, and decide for yourself if the person you are working with can help you achieve your goals.

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How can I choose a Credit Counseling Service?

Once you have made the decision to get consumer credit counseling, you are now left with the task of choosing the right credit counseling service.  Here are some tips for finding the right organization to help you deal with your debts:

First, talk to your friends and family members to see if they have any personal experience with a credit counselor.  Word-of-mouth referrals are the best kind, so if you can find one that your friends were satisfied with, they will probably also do a good job for you and your family.

Second, research your options on the internet, including using our credit counselor locator.

Third, use our web site to understand the process and your options, so that when you do contact a credit counselor, you will know what questions to ask.  Be sure to read our article on What questions should I ask my Credit Counselor?.

With proper research you will find the write credit counselor to help you through the process.

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What do I need to know about the mandatory credit counseling sessions before filing personal bankruptcy?

If you live in the United States, you must attend a credit counseling session no earlier than 180 days before you file personal bankruptcy. Mandatory credit counseling before filing bankruptcy became law in October, 2005.

You must complete your credit counseling session, and have a certificate proving that you have completed your credit counseling session, or else the court will dismiss your bankruptcy case, and you will not receive protection from your creditors.

This credit counseling session must be completed by an approved credit counselor. If you are considering filing bankruptcy, either under Chapter 7 or Chapter 13, we suggest you contact a qualified bankruptcy attorney or credit counselor to explain to you the process in detail, so that you meet all of the requirements and understand all of your obligations before you go to court.

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Can I buy a House if I go through Credit Counseling?

consumer credit counseling is a great way to deal with your debts, and by dealing with your debts you put yourself in great shape to one day own a house.

To buy a house you need a down payment, but if you are using all of your money to repay your debts, you will never be able to save for a down payment.

Credit counseling allows you to get out of debt, so you can start saving to buy the home of your dreams. But there is more to credit counseling than just getting rid of your debts.

Credit counseling will also teach you money management skills. If you manage your money properly you can save for that house faster.

The point is that credit counseling will deal with your debts, and give you the skills necessary to manage money and buy your first house.

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How can credit counseling help me avoid bankruptcy?

If you have a lot of credit card debt or other types of debt, there are two very common ways to eliminate your debt: consumer credit counseling or personal bankruptcy.

Personal bankruptcy may be an option for you, but there are a number of disadvantages to personal bankruptcy.

First, no-one wants to go bankrupt. Second, with a bankruptcy on your credit report it may be more difficult to borrow in the future. Third, there are costs associated with bankruptcy, including legal fees.

For those reasons, many people use credit counseling as a way to avoid bankruptcy. People go bankrupt to stop their creditors from calling, and to prevent legal action. Credit counseling can accomplish the same objective.

Your credit counselor will put you on a Debt Management Program where you make one payment each month to deal with your debts. Once the payment plan is in place, your creditors are no longer calling or threatening you, so credit counseling becomes a great strategy to avoid bankruptcy.

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Should Students Get Credit Counseling?

It is a sad but true reality: we do not do a good job of educating students about money, debt and credit.  We teach them how to spend, but we don’t teach them how to use credit wisely.
For that reason, credit counseling, particularly learning to budget, is a great skill for students to learn.  In fact, many non profit credit counseling organizations run seminars for students at local high schools, colleges and universities to help them learn how to budget.
If you have a student in your family, encourage them to learn money management skills while they are still young!

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