Unlike other debt relief options available to consumers, most credit counseling agencies are non-profit and do not rely on fees paid by consumers as their main source of revenue. For a small monthly fee, typically under $50 according the Association of Independent Credit Counseling Agencies, credit counselors provide a wealth of services that struggling consumers can use to their advantage. Although there are disadvantages as well, which will be discussed in the next section, credit counseling can be an excellent way to climb out of a financial hole for consumers with a steady income whose debts are not completely out of control.
The Top 10 Credit Counseling Pros
Pro #1: Credit Counseling Services Analyze Your Financial Situation
How did you get over your head in debt? Are you even aware how much debt you have? Credit counselors will answer these questions and more by performing a thorough analysis of both your current financial status and your past behavior.
According to a study published by the National Federation of Credit Counselors, consumers who sacrifice for months to recover from debt often go back to the same bad habits once they’re debt-free. To prevent that from happening, the credit counseling agency will help you develop long-term goals as well as a plan to keep them. This valuable insight and support will give you better odds of actually staying out of debt and becoming financially successful down the line.
Pro #2: Properly Documenting Your Income, Expenses, and Assets
Before creditors will discuss a modification to your debt agreements, they will demand a detailed financial statement listing all income, expenses, and assets. The credit counselor understands which information should be included and how to present it so your modification proposal has the best chance of being accepted by creditors.
Pro #3: Credit Counselors Personalize Solutions to Achieve Your Goals
Your situation is unique, and a cookie-cutter solution may not meet your goals. The credit counselor can customize a debt management plan to your specific situation so you achieve every reasonable goal. For example, you may be in the middle of a career change requiring education or training. Rather than repay your debts as quickly as possible, it may be a better long-term solution to minimize your monthly debt payments to free up money for tuition and books. The credit counseling service will help you look at every option and decide what’s best for you.
Pro #4: Credit Counselors Can Help You Minimize Damage to Your Credit Score
Consumers are justifiably concerned with how credit counseling affects a credit score. According to Equifax, one of the three leading credit bureaus, credit counseling and entering into a debt management plan does not directly affect one’s credit score. However, it can indirectly lower your score or reduce your access to credit facilities. Many creditors do not want to offer new credit to those on debt management plans, and some debt management plans even prohibit participants from obtaining new credit. The credit counseling service can explain how to minimize that impact and improve your credit score as quickly as possible.
Pro #5: Negotiating with Your Creditors
If, like many consumers facing a credit crisis, you owe multiple creditors, trying to get all of them to agree to modify your debt agreements is a daunting task. Credit counselors have built relationships and have experience working with all of the major credit companies and understand how to negotiate the best deal so you can attain long-term financial stability.
That experience and knowledge can make a big difference in how much you end up paying each month.
Pro #6: Credit Counseling Services Can Lower Your Monthly Debt Payments
The key to getting your finances in order is to reduce your monthly debt payments to a level you can afford. The credit counselor will present your income statement and monthly bills to your creditors and propose a fair reduction in your total monthly debt payments, spread across all unsecured creditors. In return for accepting a lower monthly payment, your creditors are assured of being paid off completely as quickly as possible.
Pro #7: Reducing or Eliminating Late Fees and Interest Rates
If you are late on a payment, most credit card debt agreements contain punitive provisions that increase the fees and interest rate you pay. The result can increase your monthly payment and total debt, making it even more difficult for you to pay the debt off. Credit counseling agencies negotiate with each creditor to cancel or significantly reduce those costs as long as you make the agreed payments.
Pro #8: Credit Counselors Stop Phone Calls from Debt Collectors
If you are already behind on debt payments, it is likely that you, your employer, friends, and family are receiving humiliating phone calls from aggressive debt collectors. Entering into a debt management plan through a credit counseling service can stop those calls, as the credit counselor will accept responsibility for communicating with your creditors.
Pro #9: Consolidate Your Debts into a Single Monthly Payment
Under a standard debt management plan, you make a single payment to the credit counseling service each month and your counselor divides it into payments for each creditor. Your role is much easier and there is less risk that you will miss a payment deadline when you only have to worry about making one payment to one company.
Pro #10: Avoiding Bankruptcy
When trying to solve a debt crisis on their own, many consumers end up filing for bankruptcy, suffering the resulting embarrassment and long-term damage to their credit scores. Working with a credit counseling agency to analyze all of your options and negotiate a debt management plan with your creditors can make bankruptcy unnecessary.
Credit counseling services offer tangible advantages that can be quantified in lower payments, faster debt relief, and less damage to your credit score. In addition, using a credit counseling service can provide peace of mind, as your debts are now under control, and restore your self-esteem by knowing you will repay every dollar owed rather than defaulting on your debt or filing bankruptcy. To many people, these last advantages of using a credit counselor are the most rewarding of all.
Get additional information on how credit counselors help consumers take control of their finances with valuable, professional advice on budgeting, paying off debts and more.