The Bottom Line: Consumer Credit Counseling programs are one of the more popular debt relief options available. Credit Counseling is a smart choice if high interest credit cards are a big problem, provided your creditor(s) work with the program. You can reduce the total cost to pay off your debt, get out of debt in 4 to 5 years, and avoid having any accounts go to collections. Be sure you can afford the monthly payment. Your success in completing the program requires you to make timely monthly payments that may be comparable to your current monthly minimum credit card payments.
Consumer Credit Counseling firms help millions of Americans each year who struggle with debt.
If you have more than $5,000 in unsecured debts, credit counseling could be the right solution for you.
One important benefit of working with a credit counseling firm is it includes a free financial review and budgeting assistance. A counselor will go over your total household income and expenses, so you can figure out how much money need to put toward your fixed living expenses and how much you can devote to paying down your debts.
You will go over your individual debts, to determine which can be included in any Debt Management Plan the Credit Counselor recommends.
Not all of your debts are eligible for a credit counseling program. The most common eligible accounts are:
Medical debts may be accepted, but the only way to find out if your specific medical debts can be enrolled is to provide a complete list of all outstanding debt.
Think carefully whether you have any debts that don’t appear on your credit report. Don’t omit anything, as you want to clear out all your debt.
Check with your Credit Counseling provider to see if they accept accounts that have gone into collection. Whether your account is still owned by your original creditor and how delinquent it is can affect whether you can enroll the debt.
You generally can’t include the following debts in your program:
The biggest benefits of a Credit Counseling Debt Management Plan are that it can get you out of debt faster and at a lower cost. The DMP will put in place interest rates that are available only through the program. If you have high interest rates, the DMP can often lower your rates significantly, so more of your money is going to principal each month.
DMPs run about 4-5 years. If you are stuck in the trap of making only the minimum payment that’s required each month, the 4-5 years will take a lot less time to pay off all your debt than working the problem on your own.
A DMP gives you the convenience of sending in just one monthly payment to pay off all your debt. The program is fixed; if you make the monthly payment each month for the number of months your program runs, you will clear out all debt you enroll.
Another great benefit of credit counseling is that it can stop collection calls. If you are already behind on your payments, aggressive collection calls can cause a lot of stress. Credit counseling puts an end to that.
The program may be able to get some late fees or other penalties removed.
Each month, you will still receive monthly statements from your creditors, so you can monitor your progress with first-hand information from your creditors.
There are three main disadvantages to a credit counseling Debt Management Programs:
Here are six important areas to focus on, so you find the best credit counseling firm to help you.