What is credit counseling?
One alternative to Debt Settlement is Consumer Credit Counseling which is for consumers who are experiencing financial difficulties and who are unable to make their minimum monthly payments.
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 the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
Consumer credit counseling organizations may recommend a Debt Management program and act as an intermediary between you and your creditors. However, unlike Debt settlement, Debt Management typically attempts to reduce interest rate and fees on your debts, not the balances themselves. Through the reduction of fees and interest, debt management will generally allow you to get out of debt on an average of five years. Further, you will have to pay back 100% of your total debt owed plus interest, which results in a much higher monthly payment than a typical Debt Settlement program.
How do I know if I need a credit counselor?
It doesn’t matter if you are $4,000 or $40,000 in debt. After considering your income and financial plans if you can figure out a way to get out of debt on your own you should try to do it. If you feel overwhelmed and helpless you may want to consider contacting a credit counselor.
How do I find a good debt counseling company or credit counseling company?
When considering Consumer Credit Counseling, you should check to see if the organization is a profit or non-profit company. Non-profit Consumer Credit Counseling organizations are funded and supported by the credit card companies who you are making the payments to. This creates a potential conflict of interest, so be sure to research if any Consumer Credit Counseling organization is collecting fees from both you and your creditors.
What should I know before consulting a credit counseling company?
Make sure you understand your financial situation and have accurate information. Gather all your statements, know what you owe and have a realistic list of your income and expenses.
What do I ask the credit counselor?
If you use a credit counselor for just a session to help you create a budget and learn about your financial options then you should have all your income and expense information gathered so the meeting is productive. Make sure to ask them their fee before setting an appointment. If the credit counselor recommends a debt management program with their company, the following are questions you should ask:
How is the amount of my payments determined?
Can you get my interest rate reduced?
Can you help get the credit card company to reduce or waive finance charges or late fees?
How often will I get updates?
Will I get a monthly statement?
What are all my options?
What if I cannot stick with the repayment plan or lose my job?
What debts can be included in the plan?
Will I have the same counselor through the whole process that I can contact at any time?
What fees do you charge?
How long will it take me to pay off my debt?
That depends on the amount of debt and the interest rate. There are many calculators you can use online to estimate the payment and months to pay off the debt. A credit counselor or representative from any other type of program should be able to give you an estimate.
Will debt counseling or credit counseling affect my credit?
It depends on your program and the company you choose. There are many factors that affect your credit score and availability of new credit so there is no black and white answer to this question. If you have already had late payments or no payments your credit is probably already affected. The best road to take is to reduce or eliminate your debt, evaluate your credit score and available credit with the credit bureaus once you have paid off your debt, and if needed, work on a program to rebuild your credit.
Your first priority should be trying to get your debt paid off by using a program that works best for your financial situation.