Consumer Credit Counseling
Consumer Credit Counseling: How Credit Counseling Works
The consumer credit counseling business is a massive industry in America.
Evidence showed that the average American is a mere three paychecks away from facing enormous, potentially devastating financial difficulty.
Each year, more than a million Americans turn to try to help themselves regain control of their financial burdens.
But how consumer credit counseling works is a mystery to most customers.
What’s involved when you hire a credit counselor?
It may come as a bit of a shock, but the first thing you will need to realize is that consumer credit counselors don’t work for YOU!
That’s one reason their advertisements on television, radio, and in your email box shout, “Our services cost you nothing! ”
However, any business should derive income from somewhere, so if they’re not charging you, who does pay them?
They work on behalf of the lenders most of the time.
However, it can work out in your best interest.
This is because they know the industry very well and they can search to get you the best rates and communicate powerfully to cut interest rates.
Here’s how it works
Regardless of what you think of the consumer credit counseling commercials credit counselors can renegotiate the general amount of your debt.
That is, the total principal balance you owe to your creditors.
They negotiate with the lenders to decrease your interest rates.
For example, let’s say that you’re paying somewhere around 18 percent on the credit card you want help with (some shops still charge as much as 21 percent).
A credit counselor will contact the cardholder and negotiate a lower interest rate–sometimes as much as half of the original speed.
That’s the great news.
The not-so-good news is your minimum payments will nevertheless be based on a 90/10 split.
Generally, meaning that 90 percent of your monthly payment will still go toward paying interest on the card.
That means, as is the case with any credit card payment, it will be well worth your while to pay a little more than the minimum each month, to whittle down your principal.
It will save you significant amounts of money in the long run.
Is credit counseling worth it?
But how can credit card companies continue to make money by cutting interest rates in half, and what do they need to gain by doing this?
The primary reason is that they understand that it’s better to find a level that gives you less pressure.
Plus, if you continue to pay them, even at a reduced interest rate, this is better than having you default on the whole amount.
The second reason is that, even at a low rate, the lender is still making a healthy profit.
They’ve borrowed that money at a significantly lower rate — sometimes as much as 66 percent less than the amount they’ll be charging you.
Then compound that over time with millions of cusomters.
They make huge amounts of profit.
So get your credit sorted and focus on earning more profits for yourself.
This takes a good amount of energy.
Consumer credit counseling CAN save you money; there’s no doubt about that.
But don’t be duped into thinking there is no hope for the future.
In the long run, credit card companies love credit counselors, because the counselors work for for them as well as you.
Faithful in your success!