Credit counseling is the process of educating consumers on how to manage finances and maintain a budget. A credit counseling agency will help a consumer understand how they got into debt and how to get out of it. They also encourage consumers to avoid additional debt while improving their financial status.
Credit counseling is sometimes referred to as debt management. Credit counseling involves negotiating with creditors, on the consumer’s behalf, to work out a repayment plan. In a debt management program a credit counseling agency can consolidate the consumer’s debt into one payment and bring the debt to current status. This helps the consumer begin building a positive credit history.
Credit counseling agencies are generally non-profit and often members of a national credit association, but they are not required to join. There are three main credit associations.
The National Foundation for Credit Counseling, (NFCC) was the first credit counseling agency created in 1951. Their stated purpose was to promote financial literacy and help consumers avoid bankruptcy. They didn’t work as collection agents for the creditors but instead focused on offering education and counseling directly to the consumer.
The Association of Independent Consumer Credit Counseling Agencies (AICCA) founded in 1993, started a new era in credit counseling. Credit counselors, who preferred to approach their customer via the telephone, began the AICCA because they felt there was a need for renewed industry standards.
The American Association of Debt Management Organizations (AAMO) is the credit counseling industry’s largest major trade organization.
A credit counseling agency must provide counseling to a consumer regardless of their ability to pay or the amount they owe. Their counselors must have certified training in financial management that meet the qualifications set out by the NFCC or AICCA. Credit counseling agencies should also help identify community resources that would assist their clients. Credit counseling can also be an asset to consumers who are not consumed with debt, but wish to receive financial education.
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