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 Repair

The Fair Credit Reporting Act (FCRA) was written in 1970 as an amendment to the Consumer Credit Protection Act. The FCRA provides additional measures of consumer protection in the areas of fairness, accuracy, and privacy of the information collected by the credit bureaus. It also allows you to personally engage in credit repair and maintenance processes, verifying that the information in your credit report is correct.

A credit bureau – sometimes called a “consumer reporting agency” – is a business that collects relevant consumer information from creditors and courthouses, and then sells that information to interested parties such as potential lenders. Such information is sold in the form of a credit report. In the U.S., the three major credit bureaus are TransUnion, Experian, and Equifax.

Normally negative items will remain on your credit report for seven years, with the exception of bankruptcy (ten years). You may choose to dispute a negative item, but if it is accurate, the dispute will be rejected and the item will remain on your credit report. However, if the negative item violated consumer protection laws, it may be removed.

When an account is unpaid for more than 180 days, a creditor usually writes off the debt as a loss on their financial statements. This is known as a charge off. Once a debt is charged off, it is either transferred to an in-house collections department or sold to a third-party collection agency who will likely contact you in attempt to recoup the balance.

The time it takes to repair your credit is completely dependent upon your personal situation. Six months should be your guide if you have many issues with your credit report.

It is a common myth that negative items must remain on your credit report for a minimum number of years. In fact, there is no minimum time-frame. Creditors control the information they provide to the credit bureaus. They can also choose to remove negative items as well. The Fair Credit Reporting Act requires all reported information to be fair, accurate, and substantiated. If these conditions are not met, the credit bureaus are required to remove it.

Credit Repair is actually the process of removing inaccurate, unfounded, out of date, false, and erroneous information from your credit report.  Your credit report dictates your credit score.  The 3 major credit bureaus collect information from lenders, creditors, and debt collectors and apply it to your credit report.  Based on that information, your credit score is determined.  This information could include the balances on loans or credit cards, credit inquiries, debt to income ratio, and most importantly, credit utilization (the percentage of debt you have to available credit)

This is determined by what your goal is.  Perhaps you are trying to buy a house.  If this is the case, you might want to get started at least 6-9 months before you plan on purchasing.  If you plan on purchasing a car, then you might to get started in 2-3 months.

You have the ability to dispute any information on your credit report you deem as inaccurate, unfounded, or incorrect.  However many consumers have tried doing this themselves only to find out that the process takes too long, is confusing, and full of challenges they deem too stressful to deal with themselves.  A third-party credit repair company can take the burden of disputing off your hands and have the ability to speed up the process through their experience.  Think of a third-party credit repair company like you would think of a Tax preparer, Legal Service, or even a plumber.  You could probably do it yourself, but perhaps not with the same end results. We highly suggest that all of our clients and prospective clients take some time to learn about their credit, credit reports, as well as the process of repairing their own credit.  You may feel doing it yourself is the better route for you and your situation.

A good credit score helps you obtain low interest rates and long term loans, like home loans or car loans. Lenders may charge high interest rates or impose undesirable repayment plans for you. Given the stakes and the consequences involved, it is clearly to your advantage to work toward recovering from a bad credit rating.

Credit Bureaus are companies that maintain records of your credit lines and performance. Records can go back for up to ten years, in the case of bankruptcy data. Creditors, banks, mortgage companies and other financial institutions supply this information to the credit bureaus. The credit bureaus then compile this data into your a credit report. A credit report has details of how you have managed credit in the past, so other lenders can judge your credit worthiness.

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.

When you are initially contacted by a debt collector regarding an unpaid debt, you have the right to request proof of the debt within 30 days of initial contact. This is called debt validation. Unless the debt collector can validate that you are responsible for the debt, they must stop all further collection efforts.

The debt validation letter from collector needs to include: 1) Proof the debt exists; 2) Proof that you are responsible for the debt; and 3) Proof that the debt collector has legal right to collect on the debt.

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Consumer Credit Repair

The Fair Credit Reporting Act (FCRA) was written in 1970 as an amendment to the Consumer Credit Protection Act. The FCRA provides additional measures of consumer protection in the areas of fairness, accuracy, and privacy of the information collected by the credit bureaus. It also allows you to personally engage in credit repair and maintenance processes, verifying that the information in your credit report is correct.

A credit bureau – sometimes called a “consumer reporting agency” – is a business that collects relevant consumer information from creditors and courthouses, and then sells that information to interested parties such as potential lenders. Such information is sold in the form of a credit report. In the U.S., the three major credit bureaus are TransUnion, Experian, and Equifax.

Normally negative items will remain on your credit report for seven years, with the exception of bankruptcy (ten years). You may choose to dispute a negative item, but if it is accurate, the dispute will be rejected and the item will remain on your credit report. However, if the negative item violated consumer protection laws, it may be removed.

When an account is unpaid for more than 180 days, a creditor usually writes off the debt as a loss on their financial statements. This is known as a charge off. Once a debt is charged off, it is either transferred to an in-house collections department or sold to a third-party collection agency who will likely contact you in attempt to recoup the balance.

The time it takes to repair your credit is completely dependent upon your personal situation. Six months should be your guide if you have many issues with your credit report.

It is a common myth that negative items must remain on your credit report for a minimum number of years. In fact, there is no minimum time-frame. Creditors control the information they provide to the credit bureaus. They can also choose to remove negative items as well. The Fair Credit Reporting Act requires all reported information to be fair, accurate, and substantiated. If these conditions are not met, the credit bureaus are required to remove it.

Credit Repair is actually the process of removing inaccurate, unfounded, out of date, false, and erroneous information from your credit report.  Your credit report dictates your credit score.  The 3 major credit bureaus collect information from lenders, creditors, and debt collectors and apply it to your credit report.  Based on that information, your credit score is determined.  This information could include the balances on loans or credit cards, credit inquiries, debt to income ratio, and most importantly, credit utilization (the percentage of debt you have to available credit)

This is determined by what your goal is.  Perhaps you are trying to buy a house.  If this is the case, you might want to get started at least 6-9 months before you plan on purchasing.  If you plan on purchasing a car, then you might to get started in 2-3 months.

You have the ability to dispute any information on your credit report you deem as inaccurate, unfounded, or incorrect.  However many consumers have tried doing this themselves only to find out that the process takes too long, is confusing, and full of challenges they deem too stressful to deal with themselves.  A third-party credit repair company can take the burden of disputing off your hands and have the ability to speed up the process through their experience.  Think of a third-party credit repair company like you would think of a Tax preparer, Legal Service, or even a plumber.  You could probably do it yourself, but perhaps not with the same end results. We highly suggest that all of our clients and prospective clients take some time to learn about their credit, credit reports, as well as the process of repairing their own credit.  You may feel doing it yourself is the better route for you and your situation.

A good credit score helps you obtain low interest rates and long term loans, like home loans or car loans. Lenders may charge high interest rates or impose undesirable repayment plans for you. Given the stakes and the consequences involved, it is clearly to your advantage to work toward recovering from a bad credit rating.

Credit Bureaus are companies that maintain records of your credit lines and performance. Records can go back for up to ten years, in the case of bankruptcy data. Creditors, banks, mortgage companies and other financial institutions supply this information to the credit bureaus. The credit bureaus then compile this data into your a credit report. A credit report has details of how you have managed credit in the past, so other lenders can judge your credit worthiness.

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.

When you are initially contacted by a debt collector regarding an unpaid debt, you have the right to request proof of the debt within 30 days of initial contact. This is called debt validation. Unless the debt collector can validate that you are responsible for the debt, they must stop all further collection efforts.

The debt validation letter from collector needs to include: 1) Proof the debt exists; 2) Proof that you are responsible for the debt; and 3) Proof that the debt collector has legal right to collect on the debt.

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