Credit 101 : Credit Counselors and Debt Consolidators (Page 1 of 3)
These companies have started popping up everywhere. In fact, as I am writing this book, there is a commercial on television for yet another credit counseling company. It seems like they are everywhere. It also seems like they can really help you with your debt problems. But can they?
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.
There is a difference between these two types of companies. 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. They also will help you get out of debt, but they do so by working with your creditors to help combine all of your debts into one large debt with one monthly payment. That usually entails getting some type of loan on your behalf that will pay off your creditors 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. There are many, many credit counseling companies out there.
What do you need to look for in a reputable credit counseling company? Here are a few suggestions:
- They should be associated with the Better Business Bureau. The service's website should have a BBB logo and a link to their record on the Better Business Bureau website. Click through the link to check that there are no unresolved complaints against them.
Many people only think about the Better Business Bureau after they've been cheated, but by then there's not much you can do. Working with a credit counseling agency that is a member of the Better Business Bureau means that you can go to them to help mediate any dispute you might have with the service provider.
- Reputable credit counseling services will be accredited by an independent nonprofit, just as many schools are. One such accreditation body is 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 $30-50.
- You will have to fill out an application when you decide to go with a credit counseling agency. The application must clearly say what the fees to be paid are, what the services to be provided are, and in what timeframe all of this will be provided.
- Run far, far away from any organization that proposes to "wipe out" your debt for you, rather than simply helping you to repay the debt. Short of your creditors just deciding to forget about the debt (unlikely), there is no way to erase debt-even bankruptcy leaves a huge mark on your credit report for ten years.
True, your car may not go missing from your driveway if you stop paying unsecured debt (i.e., debt that is not "secured" with collateral, like most credit cards, unlike most auto loans). But you are still legally obligated to pay the debt, and the possibility of being taken to court will loom over you. You will likely be unable to get even "bad credit" financing if you still have debts in collections-good luck buying a car or house.
Now let's look at how a reputable credit counseling service will work. First, they will negotiate with your creditors to establish a debt management plan (DMP) for you. A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client. Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan.
After joining a DMP, the creditors will close the customer's accounts and restrict the accounts to future charges. The most common benefit of a DMP as advertised by most agencies is the consolidation of multiple monthly payments into just one monthly payment which is usually less than the sum of the individual payment previously paid by the customer.
Continue : Credit Counselors and Debt Consolidators (Page 2)
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