Is Credit Counseling a Good Bankruptcy Alternative?
Consumer credit counseling is the process where a credit counselor meets with you and works out a plan between you and your creditors to repay your debts. This may involve simply teaching you some budgeting skills to help you deal with the debts on your own, or it may involve a formal Debt Management Program where you pay the credit counselor each month, and they distribute the money to your creditors.
If you can afford it, credit counseling is a good bankruptcy alternative. If you have $10,000 in debts and you can afford to repay $500 per month, under your debt management plan you will repay all of your debts in 20 months. Often the interest rate on your debts is reduced or eliminated, so it's a great way to ensure that all of your payments are going towards the principal of your loan.
But here's the catch: in our example above you are paying $500 per month. If you are unemployed, or don't have sufficient income to make the payments, credit counseling is not the correct option for you.
As with all debt management strategies, there are positives and negatives, so meet with a credit counselor to review your options, work out a budget, and decide if credit counseling is the correct strategy for you.
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