What is credit counseling?

Credit counseling is a process through which debtors can evaluate their credit status, learn their budget limitations and explore strategies for controlling debt with the help of a credit counselor. The goal of credit counseling is commitment to an action plan for eliminating high interest debt, restoring credit and improving the net worth of the household.
An action plan can sometimes include a debt management program when the client needs substantial support to control dangerous debt scenarios. An action plan may focus on strategies for a debtor to manage their own debt repayment. Sometimes an action plan may include getting legal advice if the credit counselor believes that the debtor is threatened with legal actions by their creditors.

History of Credit Counseling

Credit counseling was created in 1951 by major credit card companies to monitor the use of consumer credit. It evolved into a way to help distressed debtors stabilize their financial situation, avoid default and become responsible borrowers. This is also about the same time that credit card usage became a widely accepted form of payment, although most of the population did not yet have a credit card.

Credit counseling was conducted by members of the National Foundation for Consumer Credit (later changed to National Foundation for Credit Counseling), which was made up of charities established to for educational purposes. Credit card company executives exercised direct control over these charities by serving as directors. Card companies also supported these organizations financially through payments known as fair share.

The NFCC faced a major challenge when it was hit with an antitrust lawsuit, since newer charities that did not join NFCC were not provided with the same financial assistance that NFCC members were granted. The newly formed Association of Independent Consumer Credit Counseling Agencies (AICCCA) claimed that NFCC members were controlled by financial institutions. As a result of the lawsuit, NFCC members restructured their boards to ensure independence from credit card companies. Card companies also agreed to provide the same support to AICCCA members that met the same criteria.

Today, credit counseling is more often conducted by telephone or using online interaction. Some for-profit companies sell debt management programs to debtors that respond to mainstream advertising. These companies provide very little counseling and work primarily through consolidated call centers. Community based nonprofit charities focus more on budget counseling and helping clients become smarter consumers. Much of their counseling sessions still occur face-to-face.

Critics of credit counseling believe that credit card companies still provide too much influence over the agency, since fair share payments are a financial incentive to enroll clients into debt management programs. However, fair share payments have dropped in recent years as card companies looked for ways to cut costs. Additionally, most participating creditors have established strict eligibility requirements to ensure that only those clients who need a debt management program are able to enroll.

A review of the credit counseling industry was conducted by the Internal Revenue Service beginning in the early 2000’s. A number of audits found that some of these companies were not providing the education necessary to justify their exemptions from corporate taxes. As a result of these audits, some debt management companies were denied charity status.

Credit counseling is provided by nonprofit charities. Debt management programs are available through both nonprofit credit counseling organizations and for-profit debt management companies.

Credit counseling is sometimes confused with the maligned debt settlement industry. However, tremendous differences separate these two industries.

Kenneth Long
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Kenneth Long

President at Debtors Unite
Kenneth Long is President of Debtors Unite, Inc. as well as President and Vice Chairman for Vision Credit Education, Inc. He served as a regional coordinator for the North Carolina Saves campaign. Long co-founded the Wake EITC Coalition along with Family Resource Center of Raleigh.

Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.

Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.

In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.

Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!

Favorite quote:

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."

Thomas Jefferson
Kenneth Long
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