Credit counseling is a popular credit card consolidation option for
consumers who are attempting to receive professional credit help to eliminate their outstanding debt. Credit counseling is a debt help choice that can help to lower the monthly payments a debtor is facing with their creditors. On top of providing clients with professional credit card debt advice, credit
counseling organizations can potentially reduce your payments as well as
guide you in setting up a manageable budget while you are in the program. It
is important to understand that credit counseling, unlike debt settlement,
does not attempt to reduce the overall amount of debt you owe through
negotiations. The information provided in the following FAQ segment should
clarify how credit counseling organizations work as a credit card debt help
option.
Q: What is the best credit counseling company?
Ultimately a lot depends on your situation and what you need. The best way
to figure out which credit or debt counseling firm works best for you is
compare your options. It's also possible another debt relief choice could be a better alternative.
Q: How long has credit card counseling been a debt help option?
A: Credit counseling agencies first appeared as a debt consolidation. They were originally started, ironically enough, by creditors themselves to help their clients afford their minimum monthly payments with lower interest rates.
Q: What kinds of debt can credit card debt counseling organizations enroll
into their programs?
A: Credit counseling companies can only enroll unsecured debt into their
programs. The most common unsecured debts are credit card debt, personal loans, and medical bills. Other debts that qualify for credit counseling
programs include payday loans, unpaid utilities, and department store and
gas card debts. If you are only dealing with secured debts, credit
counseling will not be a debt help choice for you.
Q: How does credit counseling assist in reducing my debt?
A: Credit counseling programs target consumers who are unsatisfied with high
interest rates that they may be paying on their credit card accounts. Credit
counseling agents set you up on a Debt Management Plan (DMP) and will
contact your creditors on your behalf to negotiate lowering your interest
rates. They do not negotiate the overall credit card debt amount that you
owe to your creditors.
Q: What exactly is the process of enrolling into a credit counseling
program?
A: First you would have a consultation with a credit counseling agent at the
firm to discuss a monthly payment estimate. This monthly estimate is
determined by who your creditors are and how much outstanding debt you owe.
If you choose to enroll in the program for debt assistance, you begin
sending the monthly payment to the credit counseling agency who will then
propose lower interest rates with your creditors. While it is a rare
situation, it is possible that a creditor may refuse to work with a credit
counseling organization and lower your interest rates at all.
Q: Is credit card debt counseling the best debt help option for everyone?
A:
No it is not. Typically, if you are able to make your monthly payments
with no problems and are simply irritated with your interest rates, it may
be one of the better debt help choices you could make. However, if you are
struggling to generate income to afford your payments and are experiencing
financial crisis, you may want to consider your other credit card debt
consolidation options. Information regarding debt settlement, debt consolidation, and bankruptcy options are also available on the website.
Q: Do credit counseling organizations help me manage my finances?
A: Credit counseling organizations will help you set up a budget once you
enroll in the credit counseling program. However, it is essential to
understand that managing your finances is ultimately your responsibility. If
they set you up on a reasonable budget while you are enrolled in their
program, but you continue to mismanage your finances, the budget will
ultimately fail.
Q: Why would a credit card counseling agency want to set up a budget for me?
A: Essentially they want you to recognize any unnecessary expenses you may
have and to cut those expenses out of your current budget so you can afford
the payments to their program.
Q: Do I need a credit card counseling company to call my creditors for me
and negotiate my interest rates?
A: Ultimately, you do not need to be enrolled in a credit counseling program
to reduce your interest rates. Any consumer has the ability to contact their
own creditors and negotiate their interest rates. However, having
professional credit card agents represent may be beneficial to lower
your monthly minimum payments by reducing your interest rates.
Q: So if I can call the creditors myself, why would I ever pay a credit card
counseling company money to do that for me?
A: Some consumers are not familiar with each creditor's internal policies
regarding negotiation, and therefore may not be able to efficiently
negotiate to reduce their interest rates to a reasonable level. Other times the credit card companies simply won't work with the consumer, and in other situations, the consumer does not know that they can do this on their own.
Q: How much do credit counseling organizations charge for their services?
A: The average credit counseling organization charges anywhere from $40-$50
up front as a set up fee, as well as $25-$35 per month for their services.
Q: When do I have to start making my payments to the credit card counseling
agency if I enroll in their program?
A: Debtors who enroll in credit counseling programs choose when they start
making their payments to the credit counseling agency. Typically, you can
start making your payments as soon as three days after enrollment. Most
credit counseling companies will have you make your first payment before one
month passes from the time you enroll in their program.
Q: How do credit counseling companies actually pay off my creditors?
Q: Is there any risk in following this type of repayment plan ?
A: Yes there is. Occasionally, once the credit counseling agency has removed
their service fees from your monthly payment, they do not have enough money
to pay off all of your creditors. As a result, your interest rates can
increase even further, and you may very well be assessed late charges.
Q: How long does the average credit counseling program last?
A: Most credit card counseling programs last anywhere from four to five
years. The length of the program may also depend on how much the client can
afford on the monthly payment.
Q: Can a credit card debt counseling organization get the collection agencies to stop
harassing me ?
A: Creditors are required to discontinue collection practices while a debtor
is enrolled in a credit counseling company's program.
Q: Can a credit card debt counseling agency get the collection agencies off
my back as well?
A: After you have made your third consecutive payment once you've enrolled
in a credit counseling program, the collection agencies are obligated to
stop the collections process.
Q: How does the length of a credit counseling program compare to the length
of a debt settlement consolidation program?
A: Debt settlement programs are much shorter. If you choose debt settlement
as your debt help solution, the program will typically last anywhere from
two to three years.
Q: If I were to enroll in a credit counseling program, would I be allowed to
pay more than the monthly minimum originally set up for me if I end up
generating more income?
A: Any credit counseling company should encourage, if you have the necessary
sources of income, to pay more than the minimum that was established at the
beginning of the counseling program. As a result, you will be able to pay
off your balances quicker and graduate the program in a shorter period of
time. Be aware though, once you agree to increase your monthly payment, you
can not lower the new payment agreed upon once it has been established with
the company.
Q: What is the average interest rate for credit cards?
A: The average interest rate on a credit card is roughly 18%.
Q: How quickly can credit card interest rates rise?
A: This depends on what creditor the credit card is with. However, consumers
should know that making a credit card payment even one day late can boost
their interest rates from the average of 18% to over 35%.
Q: I thought credit counseling agencies were supposed to be non-profit
credit card debt help organizations?
A: At one time credit counseling was a non-profit driven industry. However, Many of counseling organizations presently are for-profit companies. After the IRS audited many non-profit credit counseling companies years ago and found they were indeed generating a profit, these companies eventually lost their tax exempt status.
Q: Are the non-profit credit counseling agencies government sanctioned?
A: No they are not. There are a number of credit counseling organizations
that do indeed assess their clients' situation from a neutral standpoint
with their best interests in mind. Unfortunately, the majority of credit
companies have the incentive to enroll consumers into their
programs in order to generate more income through client fees.
Q: What should the goals of a consumer be who is considering enrolling into
a credit counseling program to relieve their credit card debts?
A: Typically, consumers who enroll into these credit counseling programs are
attempting to lower their monthly payments by reducing their interest rates.
In addition, many consumers find it appealing that creditor harassment stops
upon enrolling into a credit counseling program. If these factors are what
you are attempting to address, then credit counseling may be a good debt
help choice for you.
Q: What should the goals of a consumer be who is considering enrolling into
a debt settlement service rather than a credit card counseling program to
relieve their credit card debts?
A: The main objective for consumers who seek out debt settlement as their
best debt help option is to dramatically reduce the overall debt amount they
owe to their creditors, not just their interest rates. In addition, these
consumers are seeking to make a monthly payment that is significantly lower
than their minimums. And finally, because debt settlement programs typically
last three years maximum, it is a faster debt help option to consider as a
solution to any financial problems these debtors are experiencing.
Q: Will enrolling into a credit card debt counseling agency's program affect
my credit negatively?
A: According to the Fair Isaac Corporation (FICO), the primary scoring
agency, enrolling into a credit counseling program will not have an adverse
affect on your credit score. However, your credit will be impacted negatively if you have missed payments or late payments while you are enrolled.
Q: How will enrolling into a credit card debt counseling agency's program
affect my credit report?
A: In simple terms, enrolling into a credit counseling program may show up
on your credit report, potentially affecting your "lendability" in the eyes
of future potential lenders. It is not uncommon in the banking industry to
hear a comparison between credit counseling and filing Chapter 13
Bankruptcy. Under Chapter 13 Bankruptcy, a debtor is set up on a monthly
installment plan through a federal bankruptcy court. Similar to credit
counseling programs, the installment plan typically lasts up to five years
in length. Follow this link for more information about the credit rating, report & bureau effect of credit counseling
Q: What are the downsides of choosing a credit card debt counseling agency
as my best debt help option?
A: There potentially are several downsides to consider. First, your monthly
payments may turn out to be the same as what you were paying before
enrolling into the credit counseling program. In addition, the program
length, typically five years, is a very long time to never miss one monthly
payment to the credit counseling agency. If you do miss one payment, your
creditors can boost your interest rates right back to where they were and
also tack on additional late fees. Also, your creditors may not even be
willing to work with the credit counseling company that you chose to lower
your interest rates. You wouldn't know this until after you enrolled in the
program, which would mean that you paid a set up fee and possibly a monthly
payment without reducing your debt at all. While this instance is rare, it
is ultimately the creditor's decision if they want to work with a credit
counseling agency or not.
Q: Are credit counseling programs more expensive than debt settlement
programs?
A: Yes they are. The reason for this relies on the fact that credit
counseling organizations only attempt to reduce your interest rates on your
monthly payments to your creditors. Debt settlement organizations on the
other hand reduce the overall debt amount that you owe to your creditors.
This is why debt settlement is usually a better debt help choice for debtors
who are in a serious financial bind.
Q: How can I research the credibility of any credit card counseling agency?
A: Be sure to check if they are member of the Better Business Bureau (BBB) . You can do this online or by calling the bureau. This also allows you to see how many complaints have been filed with the company through the BBB. If they are not members with the BBB, it is likely that the credit counseling organization is practicing business unethically or with fraudulent intentions. You can also find out if they are a member of the National
Foundation for Credit Counseling (NFCC) , which was started in 1956 to ensure credit counseling agencies were meeting industry standards.
Q: What should I ask the credit counseling agent I first consult with before
enrolling into a credit counseling program?
A: First and foremost, make sure that the credit card debt advice the agent
is giving you is genuine and honest. Ask the agent how the monthly payment
is determined, how you will know the creditors have received their payments,
what happens if you were to miss a payment, what debts will be excluded from
the counseling program, and how often you can get an update on your
accounts. In addition, be sure to ask the agent if credit counseling truly
is the best debt help option considering your circumstances. You will know
immediately if they are just trying to sell the program without your best
interests in mind.
Q: Can a credit counseling agent tell me that I should file for Bankruptcy
instead of enrolling into or completing their program?
A: No. The credit counseling agent has no right to advise you whether or not you qualify to file Chapter 7 or Chapter 13 bankruptcy. This decision should be made by the consumer with the aid of a debt attorney .
Q: Can I file for bankruptcy while I am enrolled in a credit card debt
counseling program?
A: No you can not. The Bankruptcy Code requires all debtors who wish to file bankruptcy to finish any credit counseling program they may be enrolled in before doing so. This applies to both Chapter 7 Bankruptcy as well as
Chapter 13 Bankruptcy.
Q: Do I have to complete a full credit counseling program in order to file
Chapter 7 or Chapter 13 Bankruptcy?
A: No you do not, as long as your debts are primarily individual debts. For
consumers who wish to file bankruptcy with primarily business debts, they
will be required to complete credit counseling before doing so.
Q: Can a spouse or significant other help pay for my credit counseling fees?
A: Absolutely. As long as the required payments are made each month to the
credit counseling company, it is acceptable to receive financial help from anyone who is willing to offer it.
Q: Can I still use my credit cards if I am set up on a credit card DMP?
A: Your creditors will shut off your accounts so you cannot use them while
you are set up on a DMP and enrolled in a credit counseling program.
Q: If I were to enroll in a credit counseling agency's program, will I still
receive credit card bill statements from my creditors?
A: Yes, your creditors will continue to send you statements so you can keep
track of your payment history.
Q: How will my creditors know that I have been enrolled in a credit
counseling program and set up on a DMP?