Credit counseling in India is not such a big business, though it is increasingly gaining a foot-hold in the common man’s consciousness. Sudden loss of jobs, stop on increments, over-spending on credit cards, multiple loans- a few or any of these combinations can bring you to a dead-end called the debt trap.

Before it is too late, approach your lender to make payment arrangements. If the situation is beyond repair, get in touch with a credit counselor.

There have been increasing instances of loan defaults in India recently, due to various reasons such as high interest rates, inflation, loss of job due to companies cost-cutting etc.

In India, there has been a growth in credit to household in recent years. The all-India Debt and Investment Survey 2003 estimates that nearly a fourth of the households were indebted in 2002.

When you approach a consumer credit counselor, they will try and convince the lender to decrease the rate of interest on the loan taken. That doesn’t help you decrease the loan. This means that if your outstanding loan amount is Rs. 1 lakh, this will be the amount payable, not any lesser than that.

Based on a credit counseling agency’s relationship with a particular bank, the negotiation between the debtor (you) and the creditors (bank) could be mediated to get reasonably favourable outcomes. The counselor may do a comparative study of the interest rates offered by various banks and also the terms and conditions of unsecured debt consolidation and choose the best one suitable for you.

The credit counselor also ensures that you get ample time in hand to stabilise your finances and also to pay off your debt in small installments.

But they may not be able to help you in debt consolidation.

So in a nutshell:

• A credit counselor examines ways and means to sort out the current financial crunch.
• They can help create awareness about the costs of misusing credit. This helps improve the customer’s financial management and develop sound spending plans.

These agencies help the distressed people gain access to the structured financial system, including banking.

What do they do? Who do they work for?

As the name suggests, these counselors help you gain control over your financial health that has deteriorated, thanks to reckless or over-spending.

You could liken them to a psychiatrist, the only difference being that while they help you out, they are really working for the benefit of the lenders. The benefit being that your sound financial health could help the bank recover the loan outstanding, or at least a part of it.

What do you need to check?

There are a few questions you need to get answers to before you finalise on a credit counseling agency.

• How much does the credit counseling agency charge for its services?
• Does the agency have due credentials?
• What are the services that the company can offer?
• A question you need to ask yourself. , Before you approach a consumer credit counseling service, have you read the testimonials and reviews of agencies previous or current clients as well as checked their official website?
• Is the credit counselor registered as BBB which stands for Better Business Bureau? This is a quality sign.

Is the person who has overextended credit a candidate for sympathy if he means well? He wants to pay back the outstanding amounts against his multiple credit cards, but what if he has just been fired from his job and cannot make his multiple credit card payments? Do you castigate him, telling him that he made the bed, he must lie in it? If that is so, does your lack of sympathy extend beyond the fact that recovery agents came to his house when he wasn’t at home and threatened his wife and child?

If you are the sympathetic kind (especially if you also have been in a similar jam) would you:

1. Tell the man that recovery agents are not allowed use force on borrowers or speak indecently to him or his family?
2. Tell the man that if he doesn’t want to speak to the recovery agent, the agent has to respect his wishes and withdraw?
3. Point out to him the RBI stipulation that “The bank and their agents should not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude the privacy of the debtors’ family members, referees, and friends, making threatening and anonymous calls or making false and misleading representations.“?
4. Point him to the Banking Ombudsman site www.bankingombudsman.rbi.org.in where he can lodge a complaint?
5. Point out to him that his best option would be pay off the entire amount. And then give him tips on how to do it - apply for a loan against property, stocks, insurance policy, or jewelry? But that he should try his best not to go for a settlement?
6. That there are credit counseling agencies, such as ICICI bank’s Disha, that exist for the very purpose of helping people like him?
7. All of the above
8. None of the above

Here are some credit counseling agencies:

• Abhay (Bank of India), 61 A, Sadanand, 1st Floor, Above Bank of India Branch, Gokhale Road (north), Dadar (West), Mumbai- 4000 028. Call 022-24221843.
• Disha (ICICI Bank), Prince Apartments, Ground Floor, Karani Lane, Ghatkopar (West), Mumbai 4000 028. Call 65971815/86/87. Visit www.dishfc.org
• Union Mitra (Union Bank of India), Union Bank Bhavan, 239, Vidhan Bhavan Marg, Nariman Point, Mumbai- 400021. Call 022-22896502.

Answers:
Correct answer - Option 7
Incorrect answer - Any other option or combination of options
So incorrect that it scares me! - Option 8