Credit Counseling – Get in Line Now To Avoid the Upcoming Rush
Credit counseling is a valuable service for consumers who have trouble
managing their finances. A distinctly different service from
debt consolidation, credit counseling assists consumers with
problem debt by educating them about the basics of money management.
Americans really don’t get the education they need about how to manage bank accounts,
balance checkbooks, or pay bills on time, and
credit counseling can provide these
services as well as others. By educating consumers, counselors hope to reduce
the number of debtors who are forced to file for bankruptcy. Anyone whose
financial situation is such that they would benefit from credit counseling may wish
to seek it out in a hurry, however. A number of different factors are coming
together in such a way that the counseling industry may soon be completely swamped
with more clients than it can handle.
Recently passed
bankruptcy legislation, designed to reduce the number of consumer
bankruptcy filings, will now make credit
counseling mandatory as a prerequisite
for a bankruptcy petition. Anyone who wishes to file for bankruptcy relief
must first demonstrate that he or she has undergone credit counseling during the
past six months. By requiring counseling as a condition of
debt relief, Congress hopes to reduce or eliminate repeat filers. The
counseling industry is preparing for the additional customers now, as the new law
is set to take effect in October 2005.
Other factors will weigh heavily on the counseling industry, however. A 2003
law passed by Congress requires credit card companies to raise their minimum payments
so that their customers can repay their balances more quickly. This has resulted
in the near-doubling of minimum payments, and the average American household, which
has a credit card balance of $10,000, will see their minimum monthly payment rise
from $200 to $400. Since many households can only afford the minimum payment
now, the hike in the minimum due may drive more Americans into
counseling and
bankruptcy.
The increased reliance upon interest-only mortgages and low-interest adjustable
rate mortgages could be a factor, too, if home prices either fall or fail to increase
as they have. The sky-high prices in many markets have led homebuyers to purchase
more homes than they can really afford, often using mortgages that are themselves
riskier than the traditional 30-year loan. Should interest rates rise or housing
prices fall, tens of thousands of homeowners will find themselves with loans that
either exceed the value of the home or are unaffordable.
Those in the credit counseling industry say that this is a critical time, and the
combination of new laws, fragile markets, and credit card industry overhaul could
push a number of consumers towards
bankruptcy and mandatory counseling. Anyone
with problem debt
who might benefit from counseling should consider doing so sooner, rather than later,
as qualified credit counselors may be quite busy this fall.