By Joseph Nykoluk:

Part 1 – What Will A Good Credit Counselor Do For You

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One good thing that you could do is go to various news sites and key in a search term like “credit counselor” or “credit counseling” and see what comes up. One thing for sure is that what you read is pretty current, sometimes only hours old. That’s what I have done. Recently there is been criticism of how some credit counselors act when trying to win you over to sign up with them.

Some of the criticism surrounded issues as to their effectiveness as well as to their legality. On the other hand you will also find those honored for leadership in Consumer Credit Counseling Services.

But, as mentioned criticism still abounds, so the Federal Trade Commission filed lawsuits against several credit counselling agencies, and they continue to urge caution to consumers when it comes to choosing a credit counselling agency.

The FTC has received over 8,000 complaints from consumers about shady credit counselors. Many of those complaints concern high or hidden fees along with the inability to opt out of so-called “voluntary” contributions. The Better Business Bureau also reports high complaint levels about credit counselling.

The FTC and Better Business Bureaus are not the only ones. Credit counseling services also touched the nerves of The Internal Revenue Service (IRS). The have denied tax-exempt status of many credit counseling agencies. Although only roughly thirty agencies were involved, they still account for more than half of the industry’s revenue.

The lobby against credit counselors arises from the belief by the collection industry that the not-for-profit status of the credit counselors gives them an unfair financial and market advantage over them. The IRS apparently agrees.

Although it has yet to be proven, it seems that the tax exempt revocations revolve around whether or not a tax exempt credit counselor really performed as they were supposed to. Instead it is speculated that they devoted their attention to their own debt management plan customers in a “collection practice“.

But, as with everything else on this planet there is The Good, The Bad, and The Ugly about Credit Counseling Services. There are some very good credit counselors that have great reputations while there are also some that love to take advantage of consumers. Where some agencies charge excessive fees and provide poor service, others are just plain frauds.

The Federal Trade Commission really had enough of this and have cracked down on con artists who target jobless Americans. If you are looking for fantastic information go check out The National Foundation for Credit Counseling – (NFCC). Being a member of the NFCC can go a long way to eliminating abuses by non-member credit counseling companies.

Debt Consolidation Companies

Although similar to credit counselors, debt consolidation companies negotiate with your creditors to try and get a lower pay-off amount for your debts and then try and secure a loan on your behalf. If successful, this will allow you make a single payment rather than several payments. The big difference with debt consolidators is that they really only do one thing – they will charge you a fee to get your creditors to accept a lower payment and then get a loan for you to pay them off.

But if you think about it, you can do this yourself. All you need to do is a little bit of work by calling your creditors and negotiate a pay-off balance yourself. When you go to your bank to get your loan, you tell them that the loan is a debt consolidation loan. Even if your credit is less than perfect, many banks have debt consolidation loans available to most people.

(NOTE: If you’re a private student attending university or college you may want to check out www.PrivateStudentConsolidationLoan.org)

When deciding on whether you want to see a credit counseling company or or a debt consolidation company, all you need to do is research all the advantages and disadvantages of each and how they relate to you. Once this is in place, narrow your research further by determining their reputation. Do some online research and go to the NFCC and see if they are a member of the National Foundation for Credit Counseling. Above all make sure they have a good reputation.

Yes, debt consolidation and credit counseling services can help you get rid of your debt but you need to be cautious and DO YOUR HOMEWORK or you could end up with more problems than just too much debt.

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Other Related Articles:

• How To Repair Your Credit – Understanding The Necessary Steps – Part 5
• How To Repair Your Credit – Step By Step – Part 3
• Can Credit Counselors and Debt Consolidators Cure Your Money Problems

By Joseph Nykoluk:

Assuming you have already found a good credit counselor to help you pay off your debts, you will want to know the process they will go through so that they act in your best interests.

Process #1

First off the credit counseling service will contact your creditors and start negotiating with them to create a debt management plan specific for your needs. The goal of a successful plan set up by your counselor is to help you to repay your debts with the aid of a repayment plan with your creditors.

If successful, the debt management plan would consist of:

• - lower monthly payments
• - lower fees
• - and, of course, lower interest rates for you

Your credit counselor will refer to the terms dictated by your creditors in order to determine the payments or interest reductions offered within the debt management plan.

Once you agree to the repayment plan, your creditors will close your accounts and restrict them to future charges. Your main benefit of seeing a credit counselor in the first place is for them to consolidate all your monthly payments into one single monthly payment. As they say - “the whole is better than the sum of its parts”.

This one single payment may seem quite large, but if you add up each of your regular payments to each creditor separately, you will find that they add up to more than if you just had to make a single payment.

Banks that offer credit cards will usually accept lower monthly payments from their customers through a debt management plan as they know it would be tougher for them if they were to make payments on their own without any counselor’s assistance.

Although some debt management plans advertise that their clients can save as much as 50% in monthly payments, the average reduction is usually between 10% and 20%

Process  #2

Another major benefit to having a debt management plan in place for you is the reduction in interest rates that you would have to pay to your creditors. If your credit card happens to be in default, the interest rates that you could be paying may approach upwards of 30%.

However, by seeing a credit counselor that can negotiate a good debt management plan for you, it is possible to secure interest rates in the 5% to 10% range, especially for bank credit cards. Heck, you may even be able to get the interest charges eliminated completely.

Negotiating a reduction in interest rates also benefits the counseling agency because they are able to advertise that their customers can be debt free in much shorter time periods. So, if it would normally take 20 years to pay off your debts, the credit counselor should be able knock about 15 years off of that payment schedule. This is very significant and an attractive advantage if your debts are quite high.

Process  #3

If your debts happen to consist of delinquent accounts, your credit counseling agency will proceed to make those accounts “current”. This is often called “re-aging” or “curing” an account. This usually occurs after making a series of on-time payments through the debt management plan as a show of good faith and commitment to completion of the program.

For example: – a client with an account that has a monthly payment of $50 but that monthly payment has not been paid in two months, might be considered by the creditor to be 60 days past due. After agreeing to the debt management plan and you make three consecutive on-time monthly payments, your creditor could “re-age” the account to reflect a current status.

This is good news because the credit bureaus would be notified that your account is now current. With this in place, your credit rating has now just been improved. However, you should also know that this process does not eliminate prior delinquencies from the credit reports.

At least this will give you some breathing room as it gives you the chance for a fresh start and for the opportunity to start building a positive credit history. Like all negative credit information, only the passage of time will lessen the impact of negative marks when credit scores are calculated.

Another thing to remember is that you still need to pay the credit counseling company for services rendered. After all, they are a company and they need to make some sort of income. You need to be aware of the amount of fee and agree to it before you sign on the dotted line.

Because the credit counseling company knows that you are in a financial bind, the fees they charge are usually not that high. This is where you need to do your homework and find a counseling service that’s right for you. Where the credit counselors are compensated the most is from the creditors themselves. This has led to speculation that credit counselors are actually just sub-department of the creditors themselves.

See Part 2 – What Can Good Credit Counselors or Debt Consolidator Do For You

Resources:

- Credit Counseling Canada

- Credit Counseling Resources

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Other Related Articles:

• Credit Scores – Are Your Credit Scores Worthless?
• How To Find A Credit Counseling Service You Can Be Happy About
• How To Be Debt Free – Finally
• How To Repair Your Credit – Understanding The Necessary Steps – Part 6
• How To Repair Your Credit – Step By Step – Part 3

Needing a good credit counseling service and actually finding a good service are two different matters. So, how can you find a good counseling service you can be happy with?

The first thing you should check is that they belong with the BBB, the Better Business Bureau. When looking at their website look for the BBB logo and make sure that it links to the Better Business Bureau. When you go to the BBB site to check out a credit counseling service, find out if there are any unresolved issues or complaints against them.

One thing to keep in mind is that a lot of people only go to the Better Business Bureau after they have a problem with the credit counseling agency. Preventing future headaches by checking with the BBB “before” any trouble begins will always be to your benefit. This makes it easier for the Bureau to mediate any disputes you may have with the service.

In many cases, if the credit counseling service is a reputable firm, they will be accredited by an independent non-profit company like the “National Institute for Financial Counseling Education.

A good credit counseling agency will charge a small, reasonable monthly fee, usually around $30. Some also charge a fee upfront, though this fee should be reasonable (around $50 tops). It may be possible to get a hardship waiver of these fees if you truly do not have the small amount of funds available.

Once you’ve made your choice, you will need to fill out one of their application forms. Make sure you read that application. It must clearly say:

• - what the fees to be paid are
• - what the services to be provided are
• - and in what time frame the services will be provided

FAIR WARNING – If the organization proposes to “wipe out” the debts for you, then run away as fast as you can. A good credit counselor should only HELP YOU to repay your debts. On the otherhand, if your creditor just decides to forget about your debts, then right on – go for it. But this is highly unlikely.

Debts are not very easy to erase. Even if you declare bankruptcy, your credit report will have a big bad mark on it for ten whole years.

If your debt consists mainly of unsecured loans like credit cards, then one advantage (if that’s what you want to call it) is that your possessions won’t get taken away. If the debt is made up of secured loans, like home mortgages or automobile loans, you could end up walking to work and sleeping under a tree.

Either way, you are still legally obligated to repay your debts, and the possibility of being taken to court will be forever a part of your dreams until it’s taken care of. It may even become harder to get “bad credit” financing if you still have outstanding debts that are not taken care of.

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Other Related Articles:

• What Will A Good Credit Counselor Do For You – Part 1
• How To Repair Your Credit – Understanding The Necessary Steps – Part 6

If you’ve ever been in a money jam you may have considered employing credit counselors or debt consolidators in a bid to cure you of your money problems. Money problems can be caused by recessions, inflation, high interest rates and bad money decisions. Everyone wants your money because they know you will give it to them if they have something they think you want but not necessarily need.

You may need help but there are a lot of other people and companies out there that also know you need help. But like anything else, some credit or debt related companies are better than others. You cannot escape the fact that you still need to do your due diligence.

There are some credit counseling agencies and debt consolidators that can actually help get people out of debt.  But there are also others who are simply trying to get money (that you don’t have) without helping you at all.

One thing you should know is that there is a difference between credit counselors and Debt Consolidators. For one thing credit counselors work for you while debt consolidators mainly work with your creditors, although they are there to help you get out of debt also.

Credit counselors will help you get out of debt and stay out of debt.  That means that they will help you realize where you went wrong on the financial road and then help you get out of debt.  After that, they will put you on a budget and offer services that can help you stay out of debt and live a financially stable life.

Debt consolidation companies are different, though not entirely.  As mentioned, they also will help you get out of debt, but by working with your creditors, they will help to combine all of your debts into one large debt with where you only make one monthly payment.

This means that debt consolidators try to secure some type of loan on your behalf which will enable your creditors to be paid off and you will pay the loan company instead.

Because of the services they provide, many people would rather go with a credit counseling service.  That’s because they need someone to help them stay away from the mindset that got them into debt in the first place.  You will find many credit counseling services and doing proper research will help you find the right counselor for your situation.

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Other Related Articles:

• What Can Good Credit Counselors or Debt Consolidators Do For You – Part 2
• How To Be Debt Free – Finally
• How To Repair Your Credit – Understanding The Necessary Steps – Part 5
• How To Repair Your Credit – Understanding The Necessary Steps – Part 4