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 Score

Credit scores for married couples are treated separately. They do not have joint credit scores. Each has their own individual scores. If you are unmarried you only need to worry about your credit habits and profile. However, if you are married your spouse’s credit habits and profile have an impact on yours. For example, if you have a credit card in both of your names and it does not get paid on time, that can adversely affect both of your credit scores.

A credit score minimum requirements, in order to qualify to receive one, your credit report must have:

  • At least one account opened for six months or more;
  • At least one account reported to the credit bureau within the past six months
  • No indication of deceased on the credit report

Credit score changes, in general, do not change that much over time. Your credit score is calculated each time it is requested;. This can be a lender request or by you. Each time your credit score is calculated it takes into consideration the information that is on your credit report at that time. As the the information on your credit report changes, your credit score can also change.

There can be delays by your creditors in reporting information to the credit bureaus. Also, the type of changes in information will affect your credit score. For example, opening a new credit card account will be more significant a change than simply having paid your bills on time the previous month. Also, something dramatic like a bankruptcy judgement will have a significant impact in the calculation of your credit score.

Credit scores are different between the national credit bureaus. In the U.S., the three national credit bureaus compete to capture, update and store credit histories on most U.S. consumers. While most of the information collected by the three credit bureaus is similar, there are differences.

All of your credit information may not be reported to all three credit bureaus. The information on your credit report is supplied by lenders, collection agencies and court records. You should not assume that each credit bureau has the same information pertaining to your credit history.

A bankruptcy affects credit scores negatively. It will always be considered a very negative event by your credit score. The negative impact it will have on your score will depend on your entire credit profile. For example, someone with a high credit score could expect a huge drop. Alternatively, someone with many negative items already listed on their credit report might only see a modest drop in their score. Also, the more accounts included in the bankruptcy filing, the more of an impact on your credit score.

Does spending less improve credit scores? It depends. If the money saved goes into your bank account, this will not improve your credit scores. Your credit scores do not consider the amount of disposable cash you have at any given time.

However, if the money saved is used to consistently payoff your credit accounts, you will notice an improvement in your credit score. Your credit score factors in the balance on your revolving credit accounts such as your credit cards. As you pay the balances down, your debt versus credit (credit utilization ratio) should decline, which is positive for your credit scores.

Do inquires affect credit scores? Yes they do. Credit inquiries are requests by a “legitimate business” to check your credit. These inquires are reported to the credit bureaus which are then included in your credit reports. There are two types of credit inquiries that are classified as either “hard inquiries” or “soft inquiries.” Only hard inquiries have an affect on your credit scores.

Soft inquiries are all credit inquiries where your credit is NOT being reviewed by a prospective lender. These include inquiries when you are checking your own credit reports and credit checks made by businesses to offer you goods or services.

Hard inquiries are credit inquiries where a potential lender is reviewing your credit because you have applied for credit with them. For example, when you have applied for an auto loan, mortgage or credit card. Each of these types of credit checks count as a single credit inquiry. The exception is when you are “rate shopping” for the best deal on a loan. In this case all all inquiries within a 45-day period for a mortgage, an auto loan or a student loan are classified as a single credit inquiry.

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.

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Consumer Credit Score

Credit scores for married couples are treated separately. They do not have joint credit scores. Each has their own individual scores. If you are unmarried you only need to worry about your credit habits and profile. However, if you are married your spouse’s credit habits and profile have an impact on yours. For example, if you have a credit card in both of your names and it does not get paid on time, that can adversely affect both of your credit scores.

A credit score minimum requirements, in order to qualify to receive one, your credit report must have:

  • At least one account opened for six months or more;
  • At least one account reported to the credit bureau within the past six months
  • No indication of deceased on the credit report

Credit score changes, in general, do not change that much over time. Your credit score is calculated each time it is requested;. This can be a lender request or by you. Each time your credit score is calculated it takes into consideration the information that is on your credit report at that time. As the the information on your credit report changes, your credit score can also change.

There can be delays by your creditors in reporting information to the credit bureaus. Also, the type of changes in information will affect your credit score. For example, opening a new credit card account will be more significant a change than simply having paid your bills on time the previous month. Also, something dramatic like a bankruptcy judgement will have a significant impact in the calculation of your credit score.

Credit scores are different between the national credit bureaus. In the U.S., the three national credit bureaus compete to capture, update and store credit histories on most U.S. consumers. While most of the information collected by the three credit bureaus is similar, there are differences.

All of your credit information may not be reported to all three credit bureaus. The information on your credit report is supplied by lenders, collection agencies and court records. You should not assume that each credit bureau has the same information pertaining to your credit history.

A bankruptcy affects credit scores negatively. It will always be considered a very negative event by your credit score. The negative impact it will have on your score will depend on your entire credit profile. For example, someone with a high credit score could expect a huge drop. Alternatively, someone with many negative items already listed on their credit report might only see a modest drop in their score. Also, the more accounts included in the bankruptcy filing, the more of an impact on your credit score.

Does spending less improve credit scores? It depends. If the money saved goes into your bank account, this will not improve your credit scores. Your credit scores do not consider the amount of disposable cash you have at any given time.

However, if the money saved is used to consistently payoff your credit accounts, you will notice an improvement in your credit score. Your credit score factors in the balance on your revolving credit accounts such as your credit cards. As you pay the balances down, your debt versus credit (credit utilization ratio) should decline, which is positive for your credit scores.

Do inquires affect credit scores? Yes they do. Credit inquiries are requests by a “legitimate business” to check your credit. These inquires are reported to the credit bureaus which are then included in your credit reports. There are two types of credit inquiries that are classified as either “hard inquiries” or “soft inquiries.” Only hard inquiries have an affect on your credit scores.

Soft inquiries are all credit inquiries where your credit is NOT being reviewed by a prospective lender. These include inquiries when you are checking your own credit reports and credit checks made by businesses to offer you goods or services.

Hard inquiries are credit inquiries where a potential lender is reviewing your credit because you have applied for credit with them. For example, when you have applied for an auto loan, mortgage or credit card. Each of these types of credit checks count as a single credit inquiry. The exception is when you are “rate shopping” for the best deal on a loan. In this case all all inquiries within a 45-day period for a mortgage, an auto loan or a student loan are classified as a single credit inquiry.

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.

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