Consumer Debt Counseling

Debt Counseling can HELP your debt problems

Your financial situation is different from anyone else. You should take the time to review this consumer debt counseling guide to find the best solution for your needs and goals.

What Is Credit Counseling

Consumer Credit Counseling services (or consumer debt counseling) is a process by a third-party company or advisor to provide you information, guidance and support on budgeting, money, credit and debt management. Certified credit counselors help people that have overextended their use of credit to regain control of their financial situation by avoiding excessive debt that cannot be comfortably maintained. Often consumer credit counseling is performed at no or minimal cost to you.

For those that need a formal, structured approach to managing their debts, credit counseling companies also offer a Debt Management Program (DMP) service. In this case, you are enrolled in a DMP and the credit counseling company serves as your proxy negotiating with your creditors. This process includes setting up a repayment plan with your creditor as well negotiating reductions in interest charges and penalties fees.

Non-Profit Credit Counseling

Non-Profit Credit Counseling

Non-profit credit counseling agencies are supported through third-party grant money. Credit card companies provide grants to non-profit agencies as a means to help their customers get out of debt. This helps them reduce charge-offs and legal costs of collections (financial losses).

The non-profit consumer debt counseling services related to debt evaluation, budgeting and education are entirely free. If you choose to enroll in a Debt Management Program, there is a nominal fee for enrollment and a monthly administrative fee.


For-Profit Credit Counseling

For Profit Credit Counseling

For-profit credit counseling agencies are supported by the user fees charged for their services. This means that their services will generally be more expensive than the non-profit agencies. Their consumer debt counseling services are basically the same.

If you are struggling with excessive debt, non-profit credit counseling is probably the better option since you will be paying fewer out-of-pocket costs. However you may find that a for-profit credit counseling agency is a more convenient fit for your particular needs.


How Does Credit Counseling Work?

A certified credit counselor will conduct a consumer debt relief consultation reviewing your particular financial situation. This process is normally conducted via telephone and takes about 30 minutes. The credit counselor will present to you the various debt relief options available to you. You get an unbiased, expert opinion about what you need to do to get out of debt while minimizing damage to your credit profile.

Free Consultation

The credit counselor will ask for some basic information:

  • Your Income
  • Current unsecured debt, plus mortgage and auto loans
  • Monthly expenses – food, clothing, school, transportation. Everything.
  • Current credit card balances, late payments, APRs
  • Other unsecured loans – medical, private student and personal loans

The credit counselor will run a soft credit inquiry of your history to determine whether there are late payments, collections, etc. This does not negatively impact your credit score.

After review, the credit counselor builds a “profile” of your financial history. The counselor can then recommend various debt relief options including.

  • Balance Transfers
  • Debt Management Program (DMP)
  • Debt Consolidation
  • Debt Settlement

The credit counselor is required to be neutral and present ALL your debt relief options, even if their agency does not offer the service, for example Debt Consolidation or Debt Settlement.

Debt Management Program

The Debt Management Program is a central fund administered by the credit counseling agency.

The credit counselor will review with you which non-secured debts, like your credit cards, medical bills, and personal loans you wish included. You will NOT have access to any credit card in the DMP. You might keep one credit card out for emergencies.

Based on your budget and debts, you and the credit counselor will determine a monthly payment amount.

Your credit counselor works with your lenders to agree to participate and lower your debt costs (APR and late fees).

You make monthly deposits to the credit counseling agency.

The consumer debt counseling agency uses your deposits to pay your creditors monthly.

Normally there is a set up fee and monthly fee for administration.

The basic benefits of a Debt Management Program include:

  • Reduce And Stop Debt Collector Calls
  • Potentially Lower Debt Interest Rates
  • Lower Monthly Payments
  • Waiver Of Late And Over Limit Creditor Fees
  • Potential Paying Off Your Debts Faster
  • Improving Your Credit Score By Making Consistent, On-Time Payments

Considerations


Analyze your current financial and debt situation.

Explain the different debt relief options for your credit card and other unsecured debts.

Assist you in selecting the debt relief option best suited to your particular needs.

If you use a Debt Management Program, it will simplify, lower your creditor payments and reduce your credit card debts faster. Also creditor collection calls would be handled by the credit counselor.

Teach you how to develop a spending budget and manage your debts effectively.

Help you achieve long-term control of your financial future.

Immediate reduction in your debt. All debt relief options take time. A Debt Management Program normally requires 36 to 60 month to complete.

Consolidate your debts. These are available through credit card balance cards or traditional secured or unsecured loan lenders.

Reduce your existing debt through debt negotiation. You may be directed to seek out debt settlement services as your best option, but the credit counselor cannot assist in your enrollment.

Advise you on other types of consumer debt such as mortgages, tax or government student loans. The credit counselor can provide recommendations to other debt relief providers.

Intercede in any existing legal court actions regarding your debt.

Report your credit history. The credit counselor can provide recommendations for this service.

Most Americans, particularly starting their financial life, have difficulty budgeting their finances, paying the bills on time and carrying excessive amount of credit card debt.

Consumer debt counseling offers you a third-party, independent financial expert who can analyze your unique financial situation.

You can benefit from the financial education provided and recommended debt relief actions.

If a Debt Management Program (DMP) is recommended, it will not eliminate your unsecured debts but will help you get them under control. It can be a successful debt relief option when:

    • Your unsecured debts (credit cards, medical bills, personal loans) are at least $5,000 or greater.
    • You have monthly income to set aside to fund the DMP. If you are unemployed, no option.
    • The unsecured debts are with the original lender, rather than a collection agency. Otherwise the lender has “charged off” the debt (taken a loss) and there is less chance a collection agency will participate.
    • The majority of your unsecured debt should be credit cards to take advantage of a reductions in interest rates and penalty fees.
    • Unsecured debts like medical bills and personal loans benefit more by renegotiating a payment plan or seeking debt settlement.

A primary benefit of participating in consumer debt counseling is that it is credit neutral. Your current credit profile (excellent, good, fair or poor) remains the same starting out.

Your credit consultation, where the credit counselor runs a soft credit check, has no affect.

If you successfully participate in a DMP, your credit history will demonstrate on time, consistency of credit card debt payments. This is positive to your credit history.

Your existing credit cards accounts will identify participation in a DMP and lenders will not approve opening new ones.

As your credit card debt is paid off, assuming you do not assume new debt, your Debt-To-Income ratio will improve. This is positive to your credit history.

You can apply for additional credit, like a house mortgage or auto financing. These secured loans, if approved, will add to your debt burden.

Your life goes on.

Credit Repair | Identity Theft

Frequently Asked Questions

Consumer Credit Basics

Convenience – Credit cards are a widely accepted form of payment and relatively safe versus cash or checks.

Leverage – If you are not satisfied with a product purchase using a credit card, you normally have the option of canceling and refusing payment.

Interest free loan – Most credit cards have about a 25 day period where no interest is paid on the balance.

Emergency Spending – Credit cards provide a ready source of credit for unexpected expenses.

Expense Tracking – Your credit card purchase are monthly summarized for your review and budgeting.

A secured credit card means that a security deposit has been set up to guarantee payments using the credit card. The amount of your security deposit is the credit limit for the secured credit card. This type of card is used by those that need to establish a credit history of consistent, on-time account credit payments.

A grace period is the amount of time after a due date of a bill before late fees are applied.

When you default on a loan to fail to make timely payments or follow other terms of the loan. When a borrower fails to make any payments due, it is referred to as a monetary default. When a borrower fails to follow through on any other terms of the debt, it is referred to as a covenant default.

Bankruptcy is the term that describes the legal court process a person must go through to relieve the debts they are unable to pay their creditors.

A late bill payment needs to be 30 days old before it will appear on your credit report. However, even if your late payment does not appear on your credit report, you will likely experience late fees and interest charges.

Late payments (30 days or more after due date), collections and foreclosures will remain on your credit report for seven years. Bankruptcy judgements will remain on your credit report for ten years.

Credit bureaus do no approve loans. Your perspective loan lender can request from the credit bureau your credit report to review as part of the application process. Credit bureaus do not make lending decisions. They collect consumer credit data to produce credit reports.

A lien holder is an institution, like a bank, that has the right to take and hold or sell the property of a debtor as security or payment on a debt or loan borrowed from them.

Debt consolidation is the process of combining multiple debts into one larger debt that can often lower payments and interest rates.

APR stands for Annual Percentage Rate, a term normally used with consumer loans. An APR includes the costs associated with obtaining the loan: interest rate, points, origination fee that you will be paying annually. The APR is used a means of comparison with like loan products.

Consumer Credit is simply the ability for a consumer to be able to borrow money in order to purchase a product or service. Borrowed money can take many forms, such as credit cards for product purchases. a student loan, a personal loan, car loan or home mortgage.

Most likely your credit report has errors.

The Federal Trade Commission reported in a study conducted in 2012 that 26% of the credit reports they analyzed had errors. Of those with errors, 5% who disputed these errors increased their credit scores at least 25 points. That is a significant change in a credit score.

You should not assume that your credit reports are completely accurate.

No. Your credit report is independent of your spouse. The same is true of your credit scores. However…

A lender will likely take into consideration both of your credit reports when deciding on a home mortgage, for example. If your credit report is bad and your spouse’s good you may find that the loan, if approved, has a higher interest rate than if both were good.

It certainly can. Many employers will do a credit check of a potential employee to determine the stability of the job candidate. For job positions that entail financial responsibility, it is most likely you would experience a credit report check.

This means that the issuer of the credit card has verified with a credit bureau that you meet its credit criteria and has pre-approved you as a quality candidate for its product.

However you will still need to apply in order to actually receive a new credit card. You may or may not be accepted once you have formally applied.

This simply means that the credit card issuer will make a quick decision about your application. Generally only those with good to excellent credit will receive rapid approval.

In the US, you need to be 18 years old to get a credit card using your credit history. You however can be listed as an authorized user by your parents.

There is a saying: “Everything in life is negotiable.” That also applies to your credit card interest rate.

If you have been consistently making on-time payments on your credit card for a period of time, it is worth a call to your credit card issuer to see if they can reduce the interest rate. It is a competitive market and it might be worth your card issuer to reduce the APR to not lose your business. If not, you might want to take advantage of an offer from another card issuer, since it is a competitive market.

Also you can consider opening a balance transfer credit card, with a lower interest rate, to move your existing credit card balance to the new card. You need to make sure that the balance transfer card, after the customary promotional period, offer you a competitive APR.

Credit cards offer much more protection against theft and fraud for online purchases. In case of a buyer dispute, the funds have already left your bank account. That is not the case if you use a credit card.

Keep your debit card for local purchases, when it is more convenient than carrying lots of cash. Use your credit card for online electronic payments.

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Consumer Credit Basics

Convenience – Credit cards are a widely accepted form of payment and relatively safe versus cash or checks.

Leverage – If you are not satisfied with a product purchase using a credit card, you normally have the option of canceling and refusing payment.

Interest free loan – Most credit cards have about a 25 day period where no interest is paid on the balance.

Emergency Spending – Credit cards provide a ready source of credit for unexpected expenses.

Expense Tracking – Your credit card purchase are monthly summarized for your review and budgeting.

A secured credit card means that a security deposit has been set up to guarantee payments using the credit card. The amount of your security deposit is the credit limit for the secured credit card. This type of card is used by those that need to establish a credit history of consistent, on-time account credit payments.

A grace period is the amount of time after a due date of a bill before late fees are applied.

When you default on a loan to fail to make timely payments or follow other terms of the loan. When a borrower fails to make any payments due, it is referred to as a monetary default. When a borrower fails to follow through on any other terms of the debt, it is referred to as a covenant default.

Bankruptcy is the term that describes the legal court process a person must go through to relieve the debts they are unable to pay their creditors.

A late bill payment needs to be 30 days old before it will appear on your credit report. However, even if your late payment does not appear on your credit report, you will likely experience late fees and interest charges.

Late payments (30 days or more after due date), collections and foreclosures will remain on your credit report for seven years. Bankruptcy judgements will remain on your credit report for ten years.

Credit bureaus do no approve loans. Your perspective loan lender can request from the credit bureau your credit report to review as part of the application process. Credit bureaus do not make lending decisions. They collect consumer credit data to produce credit reports.

A lien holder is an institution, like a bank, that has the right to take and hold or sell the property of a debtor as security or payment on a debt or loan borrowed from them.

Debt consolidation is the process of combining multiple debts into one larger debt that can often lower payments and interest rates.

APR stands for Annual Percentage Rate, a term normally used with consumer loans. An APR includes the costs associated with obtaining the loan: interest rate, points, origination fee that you will be paying annually. The APR is used a means of comparison with like loan products.

Consumer Credit is simply the ability for a consumer to be able to borrow money in order to purchase a product or service. Borrowed money can take many forms, such as credit cards for product purchases. a student loan, a personal loan, car loan or home mortgage.

Most likely your credit report has errors.

The Federal Trade Commission reported in a study conducted in 2012 that 26% of the credit reports they analyzed had errors. Of those with errors, 5% who disputed these errors increased their credit scores at least 25 points. That is a significant change in a credit score.

You should not assume that your credit reports are completely accurate.

No. Your credit report is independent of your spouse. The same is true of your credit scores. However…

A lender will likely take into consideration both of your credit reports when deciding on a home mortgage, for example. If your credit report is bad and your spouse’s good you may find that the loan, if approved, has a higher interest rate than if both were good.

It certainly can. Many employers will do a credit check of a potential employee to determine the stability of the job candidate. For job positions that entail financial responsibility, it is most likely you would experience a credit report check.

This means that the issuer of the credit card has verified with a credit bureau that you meet its credit criteria and has pre-approved you as a quality candidate for its product.

However you will still need to apply in order to actually receive a new credit card. You may or may not be accepted once you have formally applied.

This simply means that the credit card issuer will make a quick decision about your application. Generally only those with good to excellent credit will receive rapid approval.

In the US, you need to be 18 years old to get a credit card using your credit history. You however can be listed as an authorized user by your parents.

There is a saying: “Everything in life is negotiable.” That also applies to your credit card interest rate.

If you have been consistently making on-time payments on your credit card for a period of time, it is worth a call to your credit card issuer to see if they can reduce the interest rate. It is a competitive market and it might be worth your card issuer to reduce the APR to not lose your business. If not, you might want to take advantage of an offer from another card issuer, since it is a competitive market.

Also you can consider opening a balance transfer credit card, with a lower interest rate, to move your existing credit card balance to the new card. You need to make sure that the balance transfer card, after the customary promotional period, offer you a competitive APR.

Credit cards offer much more protection against theft and fraud for online purchases. In case of a buyer dispute, the funds have already left your bank account. That is not the case if you use a credit card.

Keep your debit card for local purchases, when it is more convenient than carrying lots of cash. Use your credit card for online electronic payments.

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