As Foreclosures Keep Rising, Can Credit Counseling Help Manage All This Debt?

June 2008

The statistics are in for May of this year, and in terms of unmanageable debt, foreclosures still topped the list. According to Bloomberg, banks repossessed twice as many homes this May, and foreclosure filings rose 48% from one year ago.

Falling housing prices have landed hard on borrowers whose mortgages are now more than they can afford. It works like this; you purchase a home with an ARM (Adjustable Rate Mortgage) with an interest rate that changes over time. Your debt is manageable at that time, so you get a house that perhaps you could not have afforded otherwise.

However, when the ARM expires, your interest rate goes up, and the value of your home goes down because the market has dropped. Your house that was once worth $600,000 is now worth $450,000, but you still owe the bank that extra $150,000 worth of loan money, and your new interest rate is so high that payments skyrocket.

And many people who chose an ARM just don't have that kind of money lying around.

So, is credit counseling going to help these people? Can it prevent a foreclosure?

First of all, understanding and managing your debt is always a good thing, so if you feel that you're struggling with payments of any kind it can't hurt to speak to a qualified credit counseling agency. Just make sure that you aren't expected to pay hidden fees, and don't agree to any consolidation loans without first examining the fine print.

However, whether or not credit counseling can help those suffering from the housing crisis depends very much on each individual's situation. Minimizing your debts will always help to make ends meet, but in terms of foreclosure, each person's situation is unique, and will involve a variety of factors that may or may not be helped.

So in all, it's fine to look into it and gain better control of your money, but don't make any long-term decisions until you've spoken to a credit counseling professional who can discuss every option out there for you and your family.