Potential Dangers of Credit Counseling

Credit counseling is a requirement that must be completed six months prior to filing for bankruptcy. While it teaches money management techniques, it is an opportunity for debtors to ask if bankruptcy is truly the best option for them. If it is, then debtors move forward and meet with a bankruptcy attorney to begin the process. However, while credit counseling is meant to be a powerful tool, it can also be dangerous for debtors if pursued incorrectly.

How Credit Counseling Can Hurt Consumers

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Though bankruptcy is often the best option for many debtors, it tends to reinforce many of the negative social stigmas attached with filing for bankruptcy. Instead of hearing all the positive aspects that a bankruptcy provides, they're bombarded with alternatives and information that isn't necessarily in their best interest.

If you're in the stages of credit counseling or about to begin the process, it's important to understand the dangers that it poses. These dangers include:

• No regulation. The industry is largely unregulated by the government, which is how there are so many scam artists that cheat people who are already financially stressed out of their hard-earned money. While working with a bankruptcy attorney will guide you through the bankruptcy process, debtors are often alone as they navigate through credit counseling.

• Entering the wrong plan. Remember, one of the goals of counseling is to show you the alternatives for bankruptcy, even if bankruptcy is truly your best solution. With all of these payment plans available, it's tempting to try to reorganize your debt and continue making payments. Unfortunately, many people find that they can't afford these payment plans and that their financial situation is getting worse each day. Meeting with a bankruptcy attorney to discuss the bankruptcy options available would have been a far better solution.

• High fees. Though the credit counseling requirement to file for bankruptcy is generally $50 or less, it can cost much more if you decide to pursue alternative plans. In fact, the high fees associated with credit counseling have resulted in many consumers using the phrase, "High fees, bad advice." This isn't to say that all credit counseling opportunities aren't useful, but a bankruptcy attorney provides many viable short and long-term options for those who are truly struggling with debt.

• Scam artists. There are many scams that will attempt to place you into a payment plan regardless of your ability to actually afford it. Instead, the scammer is simply interested in sucking money away from the fraudulent plan. On the other hand, bankruptcy attorneys must be certified to practice and it's much easier to determine the qualification of a lawyer than credit counselor.

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