Credit counseling is a valuable service for consumers who have trouble managing their finances. A distinctly different service from debt consolidation, credit counseling assists consumers with problem debt by educating them about the basics of money management. Americans really don't get the education they need about how to manage bank accounts, balance checkbooks, or pay bills on time, and credit counseling can provide these services as well as others. By educating consumers, counselors hope to reduce the number of debtors who are forced to file for bankruptcy. Anyone whose financial situation is such that they would benefit from credit counseling may wish to seek it out in a hurry, however. A number of different factors are coming together in such a way that the counseling industry may soon be completely swamped with more clients than it can handle.

Recently passed bankruptcy legislation, designed to reduce the number of consumer bankruptcy filings, will now make credit counseling mandatory as a prerequisite for a bankruptcy petition. Anyone who wishes to file for bankruptcy relief must first demonstrate that he or she has undergone credit counseling during the past six months. By requiring counseling as a condition of debt relief, Congress hopes to reduce or eliminate repeat filers. The counseling industry is preparing for the additional customers now, as the new law is set to take effect in October 2005.

Other factors will weigh heavily on the counseling industry, however. A 2003 law passed by Congress requires credit card companies to raise their minimum payments so that their customers can repay their balances more quickly. This has resulted in the near-doubling of minimum payments, and the average American household, which has a credit card balance of $10,000, will see their minimum monthly payment rise from $200 to $400. Since many households can only afford the minimum payment now, the hike in the minimum due may drive more Americans into counseling and bankruptcy.

The increased reliance upon interest-only mortgages and low-interest adjustable rate mortgages could be a factor, too, if home prices either fall or fail to increase as they have. The sky-high prices in many markets have led homebuyers to purchase more homes than they can really afford, often using mortgages that are themselves riskier than the traditional 30-year loan. Should interest rates rise or housing prices fall, tens of thousands of homeowners will find themselves with loans that either exceed the value of the home or are unaffordable.

Those in the credit counseling industry say that this is a critical time, and the combination of new laws, fragile markets, and credit card industry overhaul could push a number of consumers towards bankruptcy and mandatory counseling. Anyone with problem debt who might benefit from counseling should consider doing so sooner, rather than later, as qualified credit counselors may be quite busy this fall.