Consumer credit counseling is one of the many debt relief programs that you can use to get out of your financial crisis. When you are buried in multiple debts, the structured payment plan that this program will provide should help you make better progress in paying down what you owe.
This type of debt relief option involves the aid of a professional debt or credit counselor to help you create the said payment plan. It begins with literally just counseling as the debt expert analyzes the amount of money that you have versus the debt that you owe. You will benefit from their expertise in terms of how you can maximize your money for the financial obligations that you currently have.
Factors to consider before opting for debt counseling
However, like all debt solutions, you need to be certain if this is the right program for you. There is no one formula for all debt situations. Because of that, you have to identify the factors and requirements that will tell you if this is what you should be using to get out of debt.
Here are the factors that will tell you if you need credit counseling as your solution.
You cannot do it on your own.
Getting out of debt may involve the simple concept of paying off what you owe but it is more difficult than you think. The challenge is in the implementation and the changes that you will have to make in order to be free from debt. There are frustrations, disappointments, discouragements and temptations that you will have to overcome. If you know that you have the tendency to succumb and fail, you should get professional help.
You don’t mind paying the service fee.
Credit counseling begins with a free service. But if you want to extend the service and go beyond the debt and personal finance education, you will have to pay a fee. This is only minimal because the government mandates that it should not go beyond $50 a month. With this fee, they will help you come up with a plan that will be presented to the creditors. They will do all the legwork and once approved, you will send a single monthly payment to them and they will disburse it to the respective accounts that needs to be paid. Take note that there should be no upfront fees. This is one of the things that you should be cautious of when choosing a credit counseling agency because it is prohibited by the law.
You value your credit score.
Debt management rarely has an effect on your credit score. If that is important to you because you have financial goals that require a loan, then this is the right program for you. Consumer credit counseling will even help you improve your score because you will be forced to stick to your payment plan. A good payment behavior will help increase your credit rating.
You have the financial capabilities to pay off your debts without reduction.
Keep in mind that unlike debt settlement, you will not have debt reduction here. You will still pay off your debts as a whole. You will just restructure your payment plan so your budget and limited resources will not have a hard time keeping up with your dues. For that, you need to have a steady and stable income.
You prefer a lower monthly payment and a longer payment term.
Another benefit of this program is a lower monthly payment despite the lack of debt reduction. Your current balance will be distributed over a longer payment period. That is what will make your contributions lower. It usually takes 3-5 years to complete. If that is alright with you, then you can proceed with this debt solution.
Reasons why credit counseling can fail you
If you look at the statistics, you will realize that a lot of people give up in the midst of credit counseling and debt management. That is usually not because the method is flawed. In most cases, the consumer had the wrong ideas about it. Here are some of the reasons why this does not work for everybody.
You need a debt reduction. As mentioned, you need to have the finances to pay off your debts as a whole. You have to possess an income for that. If not, you may be better off with debt settlement or bankruptcy.
Your job is not stable. This payment method involves a long payment period. If you hold temp jobs, it may be a problem for you to stick to your payments. One late payment can prompt your creditor to cancel the whole agreement and return you to your old payment scheme (usually with higher monthly contributions).
You expect a faster payment progress. To achieve the lower monthly payment, you have to elongate your payment term. That will take time and the low contributions will mean you are chipping at your debt one at a time. You need to expect that you will not see good results immediately.
You fail to implement the spending habits that will keep you from incurring more debt. All debt relief programs require you to change the habits that got you in this debt situation in the first place. You need to identify the mistakes that you made and make a commitment to not do them anymore. These can be overspending, unnecessary credit card purchases, lack of savings, etc.
It is also important that you take time in choosing the credit counseling agency that you will entrust your debts to. Look into the National Foundation for Credit Counseling or NFCC for a list of their members. You will find reliable and trustworthy companies in this site. Not only that, the US Department of Justice listed the approved credit counselors that they use in bankruptcy proceedings. This will assure you that the agencies on their list are all legit. You can even filter the list by State.
The FTC or Federal Trade Commission also published a helpful guide that will keep you away from credit counseling agencies that are only after to scam you out of your money. Explore their site to read about debt related laws and regulations that can protect you as a consumer.