Articles Tagged with Credit Counseling

How does consumer credit counseling work? And more importantly, is there “a catch”? Consumer credit counseling can work great for someone who is just a little over extended in debt.  Consumer credit counseling agencies are the true non-profit agencies you hear about that work with your credit card companies to reduce your payments or interest rates so you can pay the debt off and be done with it.  However, this is limited to credit card debt.

How does it work?  The agency contacts the credit card companies, which will cooperate  to possibly reduce the interest rate.  The agency will then tell you the monthly payment that you must send in to pay the debt in full.  Your household budget and your ability to pay have nothing to do with the monthly payment amount.  You pay that monthly payment to the credit counseling agency and then the agency sends payments to each of your credit card creditors each month. The credit counseling agency will usually receive a fee for this service from the credit card company.

What is the catch?  Well, by the time you realize that you are in a financial bind, you are beyond the help a consumer credit counseling agency can offer.  The monthly payment you will make to the agency is not much different than the minimum payments you were making to pay the credit cards.  If your main issue stems from the lack of cash flow, which is extremely common, then consumer credit counseling doesn’t work.

Whether you are doing a debt consolidation, debt management, debt settlement, credit counseling, or bankruptcy, all negatively affect your credit.  The secret they don’t want you to know: your credit will suffer if you are not paying creditors exactly like you agreed or exactly like they want.  Debt consolidation, debt management, debt settlement, and credit counseling companies want you to pay them a fee in addition to what you pay on your debts.  These payments are NOT improving your credit and in many cases the payment won’t cover the interest on the debt.

Bankruptcy can get you back on track to good credit faster and cheaper than any of the other options.  Don’t sacrifice your financial future by using your savings or cashing out 401k’s and retirement accounts in an effort to stay afloat.  Right now, you need to do what is best for you and your family.  Things aren’t like they used to be.  Your credit will recover after bankruptcy.