For some, a budget can balance while also meeting monthly debt obligations. But unfortunately, this may come at the expense of not meeting essential needs or having the ability to obtain financial goals such as emergency savings.
For others, no matter what amount of work goes into reviewing the budget and reducing expenses, they just can’t find a way to meet the monthly payment owed on credit cards or other debt because they have to keep the electricity on and food in the refrigerator. Therefore they miss payments to creditors.
Overburden of debt on the monthly budget
In either situation, unable to meet debt obligations, or meet financial goals, debt has overburdened the budget. Either situation typically occurs when home mortgages exceed take home pay of 25% and credit card and other debt is more than 5%.
Although, a Christian financial counselor doesn’t make decisions for his or her clients, the responsibility of a counselor is to help the client think about their options and through prayer and thoughtful consideration, the client makes the decision. Unfortunately, as a Money Map Coach, I see these scenarios quite often and try to ask people the following questions:
- Is it possible to generate more income through a part-time job?
- Is it possible to sell assets or downgrade?
- Can a family or friend help?
- Can your church pray for you, or can you spend time praying with your pastor?
Can you think of other questions or options for people to consider?
Open the door to God working in the area of personal finance
Of course, I want the client to open the door to God working in this area of their life through prayer, but also want them to exhaust every effort (do their part) to avoid being sued by a creditor as well as pursuing bankruptcy unless the debt is causing health problems.
I read an article, Credit Counseling: How Successful? by Mary Hunt recently that spoke highly of the Consumer Credit Counseling Service (CCCS). Although, these services sometimes get a bad name because of unethical behavior by some organizations, credit counseling services can be an option to consider if all efforts have been exhausted and someone is willing to make the commitment to resolving their problem.
Crown Financial Ministries offers a connection to CCCS of Atlanta through their Financial Hope website. I’ve brainstormed some of the benefits I’ve seen with this organization as well as risks people should consider before taking this step.
Benefits in using credit counseling
- Possible reduction in fees: sometimes the credit counselors can work with creditors to reduce fees
- Possible reduction in interest rate so the finance charges are brought under control
- One consolidated payment which frees up money in the budget for other critical expenses and for working towards financial goals
- Mental health in working with one point of contact (CCCS) who is managing and working with the creditors
Risks associated with credit counseling
- The credit organization could charge more fees while in discussion with the credit counseling service, if you’re delinquent on payments. In other words, they may decide to
increase the interest rate or fees if they know you’re working with a counselor or could eventually default all together. This sometimes occurs in bankruptcy hearings. Although this is in poor taste and unethical, some companies have been known to take such measures. - Not all creditors will negotiate, so if you cannot make the payments you could eventually be sued for the money. But you also have this risk without working with a credit counseling service.
- For someone who is in debt, the root cause of the problem needs to be corrected before working with credit counseling. If the root cause, over spending, lack of stewardship, etc., isn’t properly dealt with, the situation could become worse once the credit counselor brings relief. In other words, credit counseling is a tool to use to help people get their finances under control, but if the original cause of the problem isn’t resolved, chances are it will continue to occur.
What benefits and risks do you see associated with credit counseling? Is it a good choice for people who have worked through all options and are willing to resolve their core problem of why they are in debt?
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