Consumer Credit Counseling ServiceDebt counseling, also known as credit counseling or management, is a form of consolidation where all of your accounts are paid with one monthly payment; however, this is not a loan. Generally non-profit, Consumer Credit Counseling agencies offer the Debt Management plans (DMP) to help consumers who are facing financial troubles.
Debt Management PlanA DMP is a kind of debt consolidation program that concentrates on lowering the interest rates on your credit cards, fills out all the paperwork and writes letters to alert the creditors to rework the payment plans, and then, distributes all the monthly payments to each of the creditors.
Could you negotiate lowering the interest rate yourself? Probably, but debt management companies sometimes have a relationship with the credit card companies. If you seek third party help to pay your monthly credit card bills, you have surrendered control of who and how much gets paid to each of your creditors. Debt management takes over that burden, and portions of your monthly payment go to each creditor. The important thing to know here is that these non-profit consumer credit counseling agencies offer consolidation programs that may be funded by the credit card companies, who typically reward the agencies with a percentage of funds collected.
What is the benefit of credit counseling?
- By opting for a debt consolidation program, you only have one monthly payment rather than several
- Lower monthly payments than what you’ve been paying to your creditors
- Your creditors are getting paid something each month, so they will not be hounding you with phone calls
- Debt consolidation programs typically will lower interest rates
- The fee to the debt management service is normally small
- You must destroy your current credit cards and not open up any new credit card accounts for the duration of the program
- Debt counseling sessions are available to help you budget, save and avoid future problems
What is the cost to you?The consumer must also realize that the full amount of the balance is being re-paid, plus interest to the credit card companies, plus fees to the debt management company. With a professional counseling service, the consumer only has to make one, often times lower, payment each month, BUT the length of the program needs to be taken into consideration here. Calculate the monthly payment by how many months (usually 60) of the program and compare that total with the original balance entered into the program. This could be as much as a 130% payback!
A debt management program listed on your credit history will appear as Third Party Assisted, which means you had to seek outside help of credit counselors to manage your debt situation. This also stays on your report for up to seven years and could be as damaging as having a Chapter 13 bankruptcy listed.
Negotiate A Reduced Monthly Payment Plan With Our Debt CounselorsUnfortunately, some companies offering a consolidation program may take advantage of consumers in need of assistance. Do not let this happen to you! Always do a thorough search of several (at least 7) different companies before you make any hiring decisions.
Before opting for credit counseling services or contacting advisors, there are a few things you should keep in mind:
- Too Good To Be True: Companies that offer a spotless credit report or “Be debt free by tomorrow” are luring you in by advertising a miracle. If it sounds too good to be true, it probably is.
- Walk-in-the-door Fees: Typically, fees are included when hiring a service, but be aware of companies who charge large fees to review your paperwork. If they charge an up-front fee before you even decide to hire them, run!
- Companies looking for you and not the other way around Telemarketers, spam and colorful fliers posted on bulletin boards are cheap marketing tools shady businesses may sometimes use to attract customers. It’s unnecessary and just shows their desperation.