In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was passed and was announced to the public. This act requires consumers to go into credit counseling before filing for bankruptcy.

A consumer credit counseling agency aims to help those people who have debt problems find a way to make those payments  and teach them how to manage their finances more effectively. Many people have trouble with proper budgeting and filing for bankruptcy is the result of uncontrolled spending. Although there are cases where uncontrolled events such as divorce, sickness, or loss of job is the main reason for bankruptcy, ineffective financial management is usually one of the reason that leads to bankruptcy.

Choosing the right credit counselor

Credit counselors should look after their client’s financial improvement. However, the reality is not all credit counseling agencies live up to this obligation. With the emergence of thousands of different credit counseling companies, a huge portion of these are only after profits. Thus, it is important to be wise in choosing your credit counselor.

How to Choose the Right Counselor

How can you  tell genuine credit counselors from fake ones? It is important that you do your research on the agency’s background and reputation. Don’t accept a credit counseling agency’s offer without comparing it to other agencies first. One way to do this is to check with the Better Business Bureau if there are any complaints against the company. If you see unresolved cases filed against the agency you’re considering, take your business somewhere else.

Also check online review sites.  Some small companies may not have any reviews and that shouldn’t be a mark against them.  If they have no reviews, you should ask them to provide you with some references.  They may not have a list at that moment.  Since this is VERY sensitive information, they will probably have to ask permission of their clients.  But if they can’t provide any at all, you may want to look elsewhere.

Be especially careful with credit counselors who only advise you to enroll in a debt consolidation programs right away without assessing your situation. A good credit counselor would take the time to look at your current financial state and provide possible solutions outside debt consolidation. For instance, he may work out a budget plan based on your monthly expenses or guide you through steps on saving money.

Those who force a client to consolidate their debts get a commission from each person they successfully enroll in the program. Although debt consolidation can help, it should be done only if other steps have already been taken.

Watch out for credit counseling agencies that ask for upfront fee. A credit counseling agency should not be asking for any advance payment, especially non-profit counseling agencies. Payment should only be given after the service has been rendered and after the individual has gained stability on his finances. Furthermore, service fees should not be unreasonably expensive.

Also make sure you choose a credit counseling agency that is a member of the National Foundation for Credit Counseling or Association of Independent Consumer Credit Counseling Agencies.