Credit Counseling can help your debt problems
Consumer Credit Counseling Guide Locator
What Is Debt Counseling?
For those that need a formal, structured approach to managing their credit card 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 credit card issuers as well negotiating reductions in interest charges and penalties fees.
Non-Profit Credit Counseling
For Profit Credit Counseling
How Does Credit Counseling Work?
A certified credit counselor will conduct a 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 credit card debt while minimizing damage to your credit profile.
Credit Counseling Services
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 credit 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
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.
Credit 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 credit 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 successfuly 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.