Advantages of Using Credit Counseling Services
Maybe you’ve gotten in over your head with your debt. It could be that you struggle paycheck to paycheck, and you’re having trouble seeing the light at the end of the tunnel because you can’t keep up with even the minimum payments let alone pay anything additional in order to pay off your debt once and for all.
When you feel like there’s no hope financially, before you go for a bankruptcy you should consider a credit counseling service. There are many advantages of using a credit counseling service over attempting to get out of your financial hardship on your own. Advantages include:
Putting an end to phone calls from creditors looking for money
Reducing interest rates on each of your accounts, sometimes even setting up your accounts with no interest at all!
Putting an end to excessive fees, including over the limit fees and late fees
Feel better because there is a plan of action that will actually make a difference towards paying off your debt.
Questions to Ask Credit Counseling Services Before Joining Program
The first step to getting help from a credit counseling service is to select a service that is actually operating in order to assist consumers. Unfortunately, there are many companies currently operating that claim to be not for profit, but are charging excessive fees and making their services otherwise unaffordable to people who are already struggling to get by. Do your homework first to ensure that you are enlisting services from a real credit counseling program designed to assist consumers with their financial problems.
Ask the credit counseling program several questions before you sign any contracts or otherwise make a commitment to join their program, including:
A request for all services offered by the credit counseling program. Ideally, a program should offer budget assistance, money management advice, and classes that help you regain control over your finances in addition to assistance with setting up affordable payment plans with existing creditors and paying off debt.
Ask if the agency charges for their classes or advice. Credit counseling services should not charge their participants for information and educational services.
Request details on all fees required to use their service. Are their monthly fees? Does it cost anything to set up your account? How much?
Make sure the credit counseling agency is licensed to operate within your state.
Ask about the qualifications of the credit counselors. It won’t be as helpful to work with people who are just employees of a credit company- you want to work with a credit counseling program that offers trained counselors who understand how to get your finances back on track, and know how to teach you how to avoid the same situation in the future.
Be bold and even ask how the employees of a credit counseling agency are paid. If they are paid more when the clients (you) purchase or sign up for certain aspects of the program, consider that a sign that they’re going to try pushing you to sign up for programs whether it’s in your best interest or not- since it earns them more money.
Debt Management Programs
Part of almost all credit counseling services is a debt management program. You might consider using a debt management program if a qualified credit counselor has thoroughly reviewed your financial situation- including your debts and income and goals for the future- and has described the program in great detail to you. If you decide to use a debt consolidation, make sure it’s offered through a credit counseling agency that will also provide you with advice and education.
Not all credit counseling services require that consumers participate in a debt management program, and not all consumers who need credit counseling also require a debt management program.
A debt management program is a program that helps consumers with their existing debt. Qualified credit counselors will take a look at your debt and income levels, discuss options for getting out of debt, and discuss the advantages and disadvantages of a debt management program with you.
If it is determined that a debt management program is the appropriate plan of action for your situation, the credit counselor will develop a payment schedule with each of your unsecured creditors, in an attempt to lower the total amount of money owed, decrease your interest rates, and have over the limit and late fees removed from accounts while you are participating in the credit counseling debt management program.
How Debt Management Programs Work
When you join a debt management program, you will begin making a monthly payment to the credit counseling agency. The agency then takes those deposits and uses them to make payments on your behalf to your student loans, credit cards, medical bills and other unsecured debts- using the payment schedule that the credit counselor has worked out with your creditors.
It’s always a good idea to get the debt management program terms in writing- and then ask each creditor if they actually do offer the concessions that the credit counselor has indicated.
Successful debt management programs may take 2 years or more to pay off your debt. Your credit counselor should be able to estimate how long it will take you to completely pay off each of your existing debt, and chances are you will be required not to apply for or use any other credit while you are part of the program.
Questions to Ask before Enrolling in a Debt Management Program
Before signing a contract or making a commitment to use a debt management program, there are more questions you should ask in order to determine if the debt management program is the best option for your situation.
If a credit counseling agency only offers debt management programs as their service, you should probably consider using a different credit counseling program that can also provide assistance with budgeting and money management.
Ask how the monthly payment is determined. If the debt management payment is higher than what you can afford each month- you’re not going to make any progress by using the program. Make sure the monthly payment is reasonable enough that you can make the payment as required each month before the due date.
Find out how the debt management program makes payments to creditors. Will it be within the billing cycle and before the due date? Do they make monthly payments to creditors or are they on some other schedule? How does their payment schedule affect your debt?
Are there any debts that you currently have that cannot be included in the debt management program? Find out why, and make sure that you can afford to pay that bill on your own while still paying the proposed debt management monthly payment.
Ask the credit counselor how the debt management program will affect your credit. If they tell you they can remove negative marks on your credit report, they’re wrong. Legally, only incorrect negative marks on your credit history can be removed before the seven year period is over.
Make sure the program you are considering is a debt management program and not a debt negotiation plan as they are two very different methods, and a debt negotiation plan can have long lasting negative results for your credit report.