Credit Counseling FAQ - Do I Have To Be Delinquent to Qualify?

A commonly asked credit counseling FAQ is whether an individual has to reach a stage of delinquency on his debt or credit card payments in order to become eligible to contact a credit counselor. A person is declared delinquent when he is unable to pay his debts for a short period, usually up to three months. However, he could be aware of the shortfall in finances much earlier as for example if he knew that he was going to be unemployed soon, which will result in a sudden loss of income. Therefore, you do not have to be delinquent to contact a credit counselor. The following FAQs will answer other queries that you have on the subject.

Credit counseling FAQ - When is an individual declared delinquent?
Most people who face hardships because their cash flow is insufficient to pay off debts, credit cards, loans or sometimes mortgages expect that their loss of income is temporary and that they will be able to pay off their debts once they get a new job or a new source of income. However, this may not be the case. For example, during recessionary times jobs are hard to come by and it results in debts being unpaid for over three or four months. Usually at this point, the bank or credit card company declares the debt delinquent.

Credit counseling FAQ - What happens when your account becomes delinquent?
Usually, once an account is considered delinquent, the creditors declare it a bad debt and sell it to collection agents at a lower price than the actual debt. It is then up to the agents to try to collect the debt from the defaulter as a lump sum payment. In case there is no possibility of collecting the debt, the collection agent has two recourses. The first is to sell it at a further reduced rate to another collector. The second is to take legal action for recovering of the money they are owed.

Credit counseling FAQ - What happens if legal action is taken against a borrower?
Legal action by the collection agent against the borrower could have extreme consequences such as the borrower's wages being attached to the debt by a court order. This would mean that the borrower's savings account and any income that he earns would first be used to settle the debts of the collector.

Credit counseling FAQ - How does hiring a credit counselor help in avoiding such as situation?
Contacting a credit counselor before your account becomes delinquent could be a smart move. The counselor can help in communicating with creditors at an early stage about the financial problems you are facing. They would also share with the creditors that the debt management program is in place to make sure that repayments are made in planned intervals. This would prevent the creditors from declaring the debts delinquent and selling the debts to collection agents. Hence, a credit counselor can help prevent you from reaching delinquency.