All About Credit Counseling

One of the most common forms of debt relief is credit counseling. Credit counseling gives a person a different perspective on their financial standing, often allowing a person to see where they can make simple changes and become financially secure.

Many people fail to recognize the importance of this form of debt relief because they are not sure what it entails. The following contains the most often asked questions and answers about this service.

• How Does A Credit Counseling Program Work?

Most counseling programs are created to allow the consumer to make a single payment to the counseling agency that in turn makes payments to all the creditors. The payment is often lower than the combined payments of all the separate debts, and payments are made on accounts that now have reduced interest, resulting in lower balances. Most programs last 4-5 years.

• How Does The Process Work?

After your first interview with a credit counselor, they will begin making payments on your accounts. During this period, the counselors will negotiate with the creditors for a reduction in the interest payment as a way to pay off the debt sooner. It is very rare for a creditor to decline the negotiations, however some may wish to decline.

• How Much Does Counseling Cost?

The price of credit counseling is often regulated by state law, so it will depend on which state you live for the actual fees. However, there is usually a $50 account establishment fee and a $35 monthly fee associated with the program. Fees are very low because creditors usually pay an additional fee to the counselors for maintaining the account.

• Will Counseling Affect My Credit Rating?

Credit counseling may have a negative impact on your credit rating if all of your accounts are currently in good standing. Entering into a counseling program may make you seem more high-risk to lenders. If your bills have had past due notices, or are in collections, however, entering into a counseling program will raise your credit rating because creditors will see that you have taken a positive action to resolve your debts.

• Are There Negative Aspects To Credit Counseling?

There may be a few drawbacks to credit counseling that include:

– Higher monthly payments than what you currently make. Sometimes the negotiations require higher payments to pay off the debt in a shorter period of time.

– If you miss or are late on a single payment, the credit card companies instantly raise your interest rates to default rates which can be in excess of 30%.

Read more here: All About Credit Counseling


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