What is a credit counseling program?
Credit counseling organizations can advise you on your money and debts, help you with a budget, develop debt management plans, and offer money management workshops. Working with a credit counselor can be a great way of getting free or low-cost financial advice from a trusted professional.
What Is Credit Counseling? Credit counseling provides consumers who may feel overburdened by debt with guidance on consumer credit, money management, debt management, and budgeting. The goal of most credit counseling is to help a debtor avoid bankruptcy if they find themselves struggling with debt repayment.
Credit counseling organizations are usually non-profit organizations that advise you on managing your money and debts and usually offer free educational materials and workshops. Debt settlement companies offer to arrange settlements of your debts with creditors or debt collectors for a fee.
Advise and educate individuals or organizations on acquiring and managing debt. May provide guidance in determining the best type of loan and explain loan requirements or restrictions. May help develop debt management plans or student financial aid packages.
You'll typically pay a small fee upfront and as well as a monthly fee for the service, and you'll likely have to close the credit cards included in the plan. Credit counseling simplifies your repayment process, ideally making it easier to pay off your debt.
Simply engaging in credit counseling itself does not directly affect your credit score. The credit counselor isn't required to report their activity to the credit bureaus in the case of offering advice and counsel. What you do with your counselor's advice is another matter.
Credit counseling success rate
According to the Federal Trade Commission (FTC), only 21% of consumers successfully complete their debt management plans. This is because a slight interest rate reduction plus waiving over-limit fees and late charges won't help if the debt is overwhelming.
Debt counselling is a consistent system of restructuring all your debt instalments into one consolidated and affordable monthly repayment. Like any service, hiring a debt counsellor will cost you, but it's a small price to pay to get you back on your financial feet.
Beware of Hidden, Up-Front and Monthly Maintenance Fees
So, you may be sending lower monthly payments to your creditors, but you could be losing money by hidden fees your new “business partner” might not reveal to you. Before you sign any contract for services, read every word of the contract.
Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting.
Can I still use my credit card after debt consolidation?
If a credit card account remains open after you've paid it off through debt consolidation, you can still use it. However, running up another balance could make it difficult to pay off your debt consolidation account.
There is a high probability that you will be affected for a couple of months or even years after settling your debts. However, a debt settlement does not mean that your life needs to stop. You can begin rebuilding your credit score little by little. Your credit score will usually take between 6-24 months to improve.
Debt relief will also often give you a fixed payment plan and a set payoff date, which can also make it worth considering — as streamlining your payments can make it easier to manage while helping you save money on interest. "One of the biggest advantages of going through a debt relief program is the savings.
Debt relief plans can help make your payments more manageable, but they're not right for everyone. It's important for you to understand how each plan or program works and how debt relief can affect your finances.
Working with a credit counseling service can be very beneficial. A certified credit counselor can help you find the best way to get out of debt, based on your needs, credit, and budget. But you want to make sure you're working with a legitimate agency and not falling for a bait and switch.
The credit reporting impacts from enrolling with a debt negotiation company to settle debts is more often than not going to stay on your credit report for 7.5 years. Debt settlement happens only after your accounts fall into advanced stages of delinquency.
A DMP isn't a legally binding agreement. This means that you can cancel it if you want to. There are a number of reasons why you might want to cancel, including: you're not happy paying a fee each month which means there's less money left to pay your creditors.
Spot and avoid scammy debt settlement or debt relief organizations — whether they're offering credit counseling, debt settlement, or any other service. Never pay any group that tries to collect fees from you before it settles any of your debts or enters you into a debt management plan.
Credit providers will no longer be able to take legal action against you. In summary, your score cannot be negatively affected by going under debt counselling.
Even if you're in a DMP, your creditors may still record that you've missed payments, as you'll be paying less than you agreed to when you took out the original credit agreement. This will mean you could find it harder to get credit while you're making reduced payments and for some time afterwards.
When should you see a credit Counsellor?
When you're mired in debt problems, it can be difficult to take a step back and assess your finances impartially. A credit counsellor can help you get a better perspective on your situation without judgment.
Debt consolidation is a good way to get on top of your payments and bills when you know your financial situation: It combines all of your debts into one payment. It could lower the interest rates you're paying on each individual loan and help you pay off your debts faster.
