Understanding Credit Counseling Services

Submitted by jvholloman on Wed, 03/25/2009 - 14:39

Credit counseling agencies are typically the last stop before bankruptcy for some, and the last stop period for others. As I have stated before, I do not believe in filing bankruptcy to relieve me of the consequences of my poor choices. I agreed to a contract and the lenders upheld their end, so now I am bound to uphold my end. If all else has failed in trying to get your debt under control and paid off, it may be time to consider a credit counseling service.

Is It Time For A Credit Counseling Agency?

If you are still making your minimum payments, I would say that you aren't to the point where a credit counseling company is needed, but if you are starting to get behind and you don't see a point in the very near future where you will have an infusion of cash, then you should seriously consider going to see a credit counselor.

Most people wait to go until they are hopelessly behind by many months in their bills. This causes hundreds, if not thousands, of dollars in penalty fees and interest rate hikes to be added to their debt. By not waiting until that point, you can get a head start on paying off your debt and maybe not hurt your credit quite as much, although at this point that shouldn't be an overriding concern.

How Credit Counseling Agencies Work

Most reputable agencies will have some sort of debt management training course that you are required to complete, so be prepared for that.

At your initial consultation, bring a copy of your MOST RECENT account statements from ALL of your creditors, including any bank statements. Also bring your last pay stub.

Your credit counselor will take all of this information from you and contact your creditors on your behalf and work out a debt modification program. They will usually be vastly more successful at this than you will be because they already have a proven track record with many creditors. They will also figure out what you can afford to pay and work toward getting all of your monthly debt payments to that level.

In virtually all cases they can negotiate past due fees from accruing as well as working out a reduction in interest rates. Many times they can even prevent interest from accumulating as well. Then they work out a monthly payment that is inline with what you can afford to pay. The reduction in interest and late fees will save most people thousands of dollars which translates into paying off their loans much faster.

Once all of your creditors are on board, you will be able to start your new repayment plan. You will actually make one payment to the credit counseling agency and they will distribute it to your various creditors as well as providing you with a monthly statement.

Benefits Of Credit Counseling

  • Stop late fees and lower/eliminate interest.
  • Pay off your debt sooner.
  • Make only one payment each month.
  • Stop the phone calls and past due notices.

Drawbacks Of Credit Counseling

  • Credit score will be lowered (although it probably already is).
  • Not possible to pay off one creditor in advance of others.
  • A late payment (or two) and you are out of the program.
  • They charge a monthly fee (it is worth it, IMO).

    • Bottom Line

    If you are having trouble repaying your debt, using the services of a credit counseling agency will help you recover from your debt in a much faster and orderly manner.