Repairing Your Credit – How Does Credit Counseling Work?

Have you ever found yourself overwhelmed by the pile of credit card bills sitting in front of you? For those of us that have experienced an overwhelming amount of credit card debt know that this type of stress can be the most traumatic experience that an individual can go through. Getting in credit card debt is a slippery slope, it usually starts with one card and one purchase but it can quickly turn into a sandtrap where the minimum payments are similar to putting a Band-Aid on a hemorrhaging wound.

When we find ourselves at the helm of a ship drowning in a sea of credit card debt there are organizations that we can turn to, and with a little due diligence and articles such as the one your reading right now can help yo navigate you to safe waters, and get you on the path to financial freedom. Credit counseling is one of those organizations that fall under the “debt solutions” category and out of all the different solutions and organizations that could assist you in time of financial crisis credit counseling will probably give you the most bang for your buck.

It was first established in the 1950′s when creditors created the National Foundation for Credit Counseling or NFCC for the purpose of, according to the W. Patrick Boisclair, Chairman of the NFCC, “the NFCC initially monitored legislative and regulatory activity for its retail credit members” and “also conducted public awareness campaigns on credit.” Their mission statement reflected an objective to help the American consumer avoid bankruptcy and keep them educated on fiscal responsibility. In 1993 another organization was established called the “Independent Consumer Credit Counseling Agencies,” or AICCCA, stating that there was a need for, “industry…standards of excellence and ethical conduct.” In 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made counseling a requirement 180 days prior to filing bankruptcy.

So now credit counseling has been such an integral part of financial health when facing the prospect of bankruptcy that now there are approximately 300 organizations that offer credit counseling in the US. Previous to choosing one of these organizations to assist you, let’s get a better grasp on what credit counseling is and how we can benefit from this breakthrough methodologies.

The main goal of credit counseling, if you walk away with anything, would be to educate you on credit card debt, and how you can avoid being swamped underneath a mountain of credit card debt. Another big part of the process is the credit counselor is involved with the negotiation of better terms across your unsecured credit card debt, which translates to lower rates and lower overall debt. Most likely, you will find yourself enrolled in a debt management plan (or DMP).


The debt management plan is another huge benefit of enrolling into counseling. A DMP is fairly simple, after your enroll in the DMP, and the credit counselor negotiates lower interest rates you close your accounts, and stop making your monthly payments directly to your creditors and begin paying the agency one payment who will disburse the funds according to the terms of the DMP.

Many counseling agencies tout some significant savings and advertise that they cut your debt by 50%-60% and you will be “debt free’ in little as two years. Realistically the industry average is you will be able to cut your debt by 20% and the DMP usually has a turnaround of about 4 years to be completely free of your debt.

Another benefit of enrolling in a DMP is the lowering of interest rates. The interst rate on a credit card that has been defaulted on is usually in the range of 30% to 50%, after enrolling in a DMP, a seasoned credit counselor can negotiate a lower interest rate where your payments will be a more manageable dollar amount reflecting your income.

Credit Counseling Scams

Unfortunately there are some fly by night credit counseling agencies that are seriously lacking in the ethics department. There are some red flags, or signals, that you should be cognizant of on your search for an agency.

Some of the more obvious red flags are:

They refuse to give any references or contact information to testimonials.
They promise that they can lower your debt in by a ridiculous amount in a ridiculous amount of time.
Poor rating on the BBB or several poor reviews on the internet.
You received an unsolicited email or phone call from them.

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credit score Counseling – What You need To understand earlier than You sign up

On the only hand, credit score counseling may be an amazing way to solve debt whilst averting bankruptcy. on the other hand, it could be like an onion; after you peel again the layers, you could cry after you see what you’re doing.customer credit counseling carrier groups arrange themselves as either for-earnings or now not-for-income. currently, now not-for-income credit score Counseling in america has been within the media and beneath the highlight of the inner sales provider (“IRS”). The IRS has cracked down on a number of the industry’s biggest gamers. forty-one credit score counseling corporations had their tax exempt (now not-for-profit) reputation revoked; they found that many companies did not provide the level of counseling or education required for you to qualify for a tax-exempt popularity.What credit score counseling corporations do (irrespective of profit repute) is set up so that it will pay returned your complete essential stability(s) on terms which might be less difficult to be able to carrier which includes a longer amortization term and/or a discounted interest charge. What this means is that in case you owe $10,000 and you are paying a mean of 15% hobby on all your money owed, you’ll still owe $10,000 however they may hopefully lessen your interest rate to at the least 1/2 of your unique price and set more lower priced bills commonly over an extended period of time. provided you can have enough money the whole plan and prices, you will be debt unfastened sooner or later. don’t forget now not-for-earnings does no longer mean unfastened, they still charge you a counseling is stated in your credit score record as a R7 and viewed negatively by using each credit grantor. As a result, if you are in a 7 12 months compensation plan, do not assume using credit score cards, getting a car loan or mortgage for the subsequent 7 years plus the time it takes you to re-set up your credit score.The origin of credit score counseling goes lower back to the 1980′s when grantors were given together and created it so as to get better money from people in debt. the new consumer credit counseling banner on the time became distanced from the credit grantors underneath a friendlier now not-for-profit fame which created trust and it labored well with the public. people signed up in droves and for-profit groups accompanied in shape rapidly there-after.if you owe much less then $10,000, credit counseling likely is not a horrific concept and a very good alternative to bankruptcy. but, human beings nonetheless fail at those plans due to the fact they take a long term and plenty of money is consumed by using protection costs over several years.a brand new entry to the debt control market has been debt settlement. Debt settlement has been a popular option in the united states and the movement has been gathering momentum in Canada. in contrast to credit score counseling, debt agreement sincerely reduces the important balance owed by you to around 40%-70% of your unique most important balance. A credit score counseling provider does not try this, it most effective freezes or reduces your interest case you owe more than you could manage, recollect debt agreement as an alternative. it is an outstanding possibility to wipe out your debt speedy whilst saving you a significant amount of cash with out doing the equal damage in your credit score rating as financial ruin would. i have seen human beings with $50,000 of debt completely debt loose in as little as 30 days if they have the proper resources. Others can also absorb to 36 months relying on their potential to settle. Debt agreement corporations are also an agent appearing to your quality interest and are not directed or controlled by way of the very identical humans you owe the way that credit score counseling corporations are. In most instances, the charges of debt agreement groups are based totally at the money you keep so that means they may be running to prevent as lots as viable. See for greater information on debt agreement.

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