Is Credit Counseling Right for Me?
If I have five credit cards that are current, two that are behind and one that’s charged off and in collections, is credit counseling for me? If so, can I enroll all of the accounts that are still will the original creditor and then settle the collection account separately?
Is Credit Counseling Right for Me?
[On-screen text] Ask the Expert – Why Do I have to Pay a Fee to Join a Debt Management Program?
Gary Herman, President of Consolidated Credit: Virtually every nonprofit credit counseling agency charges fees to its clients for the services it provides. These fees simply cover our costs associated with providing the services. There’s no profit or extra dividends or money built in to the fees that we charge. And a good portion of what we do is paid for by your creditors.
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Searching for debt relief is exhausting and can leave you feeling like you have nowhere to turn. You may have considered a balance transfer, debt settlement, or even bankruptcy. You may feel unsure about which path to take.
If this feels familiar, credit counseling may be right for you. Calling a credit counselor and getting a consultation is a great way to kick-start your journey toward debt relief. A credit counselor can help you review all of your options and decide which method is best for you.
What happens in credit counseling?
Credit counseling is designed to help you find the solution for your debt that fits your needs. A certified credit counselor will evaluate your debt and budget to see where you stand. Then, they will direct you toward the option that makes sense for your financial situation.
If you stick with the credit counseling agency for your debt relief, you will enroll in a debt management plan (DMP). In this program, a credit counselor will consolidate your debts into one monthly payment to the credit counseling agency.
Credit counseling can also go beyond helping you find debt relief. Their financial counseling services are meant to set you up for a financially stable life even after you pay off your debt. Especially if you work with a nonprofit credit counseling agency, there will be many free personal finance resources available to you.
What kinds of accounts can I pay off through credit counseling?
When you enroll in a debt management plan through Consolidated Credit, you get to choose which accounts you consolidate and which accounts you pay off on your own.
For example, Jacqueline G. asked if she could enroll all of the accounts that are still with the original creditor and then settle the collection account separately. This is definitely possible. You choose exactly which accounts get enrolled in the program and you can handle the other accounts however you want. In most cases, your counselor will recommend that you include all of your credit cards in the program; however, you have the ability to leave one card out for emergencies. Collection accounts are entirely up to you.
President Gary Herman helps you understand how credit counseling may be able to help with debts that have been moved to a charge-off status – even if those debts have already been sold to a third-party collector.
Debts in collections absolutely can be included on a debt management program. If it’s with the original creditor, even if it’s not with the original creditor, in a lot of cases we’re able to get the original creditor to accept the payments back again. Any card that’s closed and you’re still carrying a balance – any payments that you make directly to the creditor will be applied 100% to the balance. The only thing that may vary by account is whether there’s still late fees or interest being applied. Most of the benefits from a debt management program come before accounts get charged off – basically before an account gets closed is when we can have the biggest effect on saving you money and helping you get out of debt sooner. Once an account’s closed, it’s charged off – the bank has already written it off, but you still owe them the money, it still shows up on your credit report, and you’re still obligated to make payments. If it’s sold to a collection agency and now someone else owns it, we can still attempt to help you with them, although it’s not a credit card company and it may be a collection agency that we don’t have a relationship with, it’s included in our service for us to reach out to them and try to work out a payment plan for our clients. The major benefits of the program really come when you’re working with the credit card companies because they have an interest in seeing you rehabilitated, educated, and they want you back as a customer.
BONUS QUESTION: Credit counseling agencies, in general, do not help with removing things that are accurate from a credit report. And, in fact, if you did owe the money and you were behind on it, and even if you make an agreement to pay it, the credit card companies are obligated to report – not why – but if something happened.
You may be a good candidate for credit counseling if…
You have trouble juggling multiple accounts.
It can be hard to keep track of multiple debts with their various interest rates. Getting tons of credit card bills every month is never easy, especially when you’re behind on some or all of them. Credit counseling helps you find the best way to consolidate your debts into one monthly payment.
You want a lower monthly payment.
Working with a credit counseling agency may help you lower your monthly payment on your debts. On average, a debt management plan lowers people’s total credit card payments by up to 30-50 percent.
You don’t want to deal directly with debt collectors.
Are you constantly getting calls about how much you owe? Do you wish you could stop dealing with collectors altogether? Credit counseling can help you with that. When you go through a credit counseling agency to find a way to eliminate your debt, it’s likely that you won’t hear from collectors directly again. If you do, you can tell them that you’re working through a credit counseling agency and would prefer that they contact the agency instead of you.
How will credit counseling affect my credit score?
Credit counseling itself will not affect your credit scores at all. The debt relief option you choose after undergoing credit counseling may affect your scores. Debt management programs, which can be completed through the credit counseling agency, don’t affect your score as harshly as debt settlement or bankruptcy.