“Cut Your Payments in Half!” or “Consolidate Your Bills into One Low Monthly Payment!”
Will Credit Counseling Work for You?
We all have seen these ads and when you see ads like these, most likely they are from a Credit Counseling firm. Let’s investigate the basis or principles behind this Credit Counseling approach and reveal the main problems most consumers face when they ultimately enroll in one of these programs.
The common term “Credit Counseling” is really misleading, since it has absolutely nothing to do with the preservation or credit score improvement. In reality, most Credit Counseling will certainly damage your credit if precautions are not taken. This single unpleasant fact is downplayed by most in the industry.
Credit Counseling is debt management. These are programs that are designed to have you make a monthly payment to an agency and then the agency redistributes your money to creditors you are behind with on your behalf. Hopefully, at a lower interest rate using an agency, all in order to pay off the debt much faster. Credit Counseling should never be construed as Debt Consolidation, Debt Settlements, or Termination of Debt. Each of those types of debt methods take a very different approach in resolution opposed to straight Credit Counseling.
With the available options at your disposal today, Credit Counseling is by far the most popular in the USA with millions of Americans on these programs.
Is this the end all solution if you are struggling with debt ?
No! Let’s look deeper at the numerous problems within this method.
In the past 10 years, the Credit Counseling industry has been the target of criticism by many pro consumer groups such as the Consumer Federation of America. However, these critics often are off the mark entirely. With a laser focus on the overly aggressive companies that utilize their 501(c)(3) non-profit status to lure consumers into believing they are a charitable organization, or possibly their services are offered free of charge. No way, these posers charge hefty so called “voluntary” contributions. Many times these add up to hundreds of dollars for the consumer, plus high monthly maintenance fees as well.
So let’s take an insider journey on how Credit Counseling actually works. For instance, someone might owe $30,000 with different credit card lenders. We also need to make the assumption the average interest rate prior to enrolling was at approximately 24% (which is actually low these days considering there are credit card bandits charging 49% per month out of North Dakota). If your minimum monthly payments have been $500, which you’ve been struggling to keep up with. At this rate, it will take a whopping 160 months (more than 13 years) to pay off your card debt, this is under the assumption you do not miss another payment.
So you enrolled in a Credit Counseling program with the hopes and promises that you will get of debt faster. But will you? This is only if your creditors agree to work with you in their program (many time this is not the case), your goal really should be in a reduction in your interest rates. Prior to this year, some creditors really liked using Credit Counseling to keep their collections ongoing and they offered very good concessions on their normal interest rates to get you back in the system. But currently they creditors are no longer participating like in the past due to being pressured into concessions and only to have the card holder default one again.
Credit Counseling part 1