CREDIT COUNSELING SERVICES
If you feel like you are suffering from high interest rates, you are not alone! The credit card companies are well known for their ability to charge very high interest rates which make it almost impossible to pay down your principal balance. Many of our clients report that they have asked their creditors for a reduced interest rate but were denied. Credit counseling is seen as a viable option for many because reducing interest rates can help you get out of debt faster.
What is Credit Counseling?
Consumer Credit Counseling Services (CCCS), sometimes called Debt Management, is an option to help you get a more reasonable interest rate while also reducing how long it will take you to pay off your credit cards. However, as with all debt relief programs,it’s important to get all the facts before committing to a credit counseling plan.
Benefits of Credit Counseling
Lower Interest Rates
- A Debt Management Plan offered by a credit counseling organization is normally able to get you lower interest rates. However, realize that the interest rates are typically negotiated in advance and rates are available from only some banks and credit card companies. They are not negotiated individually.
One Monthly Payment
- All of your separate credit card payments will be reduced to one single payment. The credit counseling company will in turn direct the payments to each of the creditors on your behalf. Don’t be fooled though…while this simplified single monthly payment may be a little more convenient for you, it is not reason enough to favor this debt relief practice.
Pay Off Entire Credit Card Balance Within 60 Months
- Have you ever noticed how long it will take to pay off your credit cards? Using the minimum payment only, it may take longer to pay off credit cards than a mortgage. With a debt management plan, you’ll be able to pay of credit cards within 60 months. This may make the payment a tad high, but more of it will go towards principal than interest. Plus, 60 months is the maximum length a creditor will offer a debt management plan.
Disadvantages of Credit Counseling
Credit Counseling Completion Rates
- The odds are against you before starting a Debt Management. It’s been reported that credit counseling programs have completion rates in the 20% range. So 8 out of 10 people won’t finish their program and may find themselves exactly where they started before enrolling!
Credit Counseling Has High Payments
- If you aren’t able to make a substantial minimum payment, normally 2-3% of the balance you owe, a debt management plan may be stretching what you can afford. This is usually the reason for high failure rates for credit counseling. In many cases, the monthly payment remains close to what the minimum payments were so there is rarely monthly relief (which is normally why people reach out to a debt relief program).Before enrolling into a debt management plan you need to be sure. If you’re barely making the minimum payments, credit counseling likely won’t be a good fit for you.
Your Credit Will Be Impacted
- Your credit score will not necessarily be affected in a debt management plan. However, banks and lenders consider a credit counseling program in the same light as a Chapter 13 Bankruptcy. In fact, to qualify for Bankruptcy you must first enroll into credit counseling.Banks are likely not to lend to those in debt management plans because they view the person’s financial situation as fragile since they are seeking assistance.Of course, if you are reading this article you probably aren’t looking to borrow more money (which is what you’d probably use your credit for)- you need to put minimum payments behind you!
Alternatives to Credit Counseling?
Credit Counseling is a great option if you are making much more than your minimum payments and your budget isn’t tight in other areas. Again, if you’re like most people in this tough economy this program won’t help your cash flow.
There are other options besides credit counseling like settling credit card debt through a debt settlement program or even filing bankruptcy.