Credit counseling

Credit Counseling

Credit counseling (pronounced: /ˈkrɛdɪt ˈkaʊnsəlɪŋ/) is a process that is used to help individual debtors with debt settlement through education, budgeting and the use of a variety of tools with the goal to reduce and ultimately eliminate debt. Credit counseling is most often done by Credit counseling agencies that are empowered by contract to act on behalf of the debtor to negotiate with creditors to resolve debt that is beyond a debtor's ability to pay.

Etymology

The term "credit counseling" is derived from the English words "credit," which is a financial term for a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at a later date, and "counseling," which refers to professional guidance in resolving personal conflicts and emotional problems.

Related Terms

Debt management plan: A debt management plan (DMP) is a formal agreement between a debtor and a creditor that addresses the terms of an outstanding debt. This commonly refers to a personal finance process of individuals addressing high consumer debt.

Debt settlement: Debt settlement is a settlement negotiated with a debtor's unsecured creditor. Debt settlement is also called debt arbitration, debt negotiation or credit settlement.

Bankruptcy: Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts.

Consumer debt: Consumer debt is the amount owed by consumers (as opposed to amounts owed by businesses or governments). It includes debts incurred on purchase of goods that are consumable and/or do not appreciate.

Credit score: A credit score is a numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of an individual.

Financial literacy: Financial literacy is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.