How Does Credit Counseling Work
How Does Credit Counseling Work? Tips For Fixing Your Credit
Maybe you have found yourself overwhelmed by the pile of credit card bills sitting in front of you. It is time to learn how does credit counseling work so that you can start to save more money.
For those of us who’ve experienced an overwhelming amount of credit card debt know that this stress can be the most traumatic experience that a person can go through.
Getting in credit card debt is a slippery slope, it usually starts with one card and one buy.
But it can quickly become a sand trap.
Often the minimum payments are like placing a Band-Aid on a hemorrhaging wound.
When we find ourselves at the helm of a ship drowning in a sea of credit card debt there are useful associations which we can turn to.
And with a little due diligence preparation can help you navigate you to safe waters, and also get you on the road to financial freedom.
Credit counseling is among these organizations that fall under the “debt solutions” class.
In effect, out of all the different organizations and solutions that could assist you in time of fiscal crisis credit counseling will give you the most peace of mind.
How Does Credit Counseling Work – Background
It was initially launched in the 1950s when creditors created the National Foundation for Credit Counseling or NFCC.
According to the W. Patrick Boisclair, Chairman of the NFCC, “the NFCC originally monitored legislative and regulatory action for its retail credit members” and “also conducted public awareness campaigns on credit.”
Their mission statement reflected an objective to assist the American consumer to avoid bankruptcy and keep them educated on financial responsibility.
In 1993, another organization was established called the “Independent Consumer Credit Counseling Agencies,” or AICCCA, saying that there was a need for, “industry standards of excellence and ethical conduct. ”
In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made counseling a requirement 180 days before filing bankruptcy.
So credit counseling has been such an essential part of fiscal health when facing the possibility of bankruptcy.
In addition, there are now are roughly 300 organizations that offer credit counseling in the USA.
Prior to choosing among these organizations to aid you, let’s get a better grasp on what credit counseling is.
How can we benefit from this?
The main objective of how does credit counseling work is to educate you on credit card debt, and how you can avoid being swamped underneath a mountain of credit card debt.
Another huge part of the procedure is that the credit counselor is involved with the negotiation of better terms for your unsecured credit card debt.
Credit repair organizations do their best to help you get reduced interest rates and reduced overall debt.
However, there are no guarantees that they can clear all of your debt overnight.
Joining a DMP
If you require assistance it is a smart decision to get enrolled in a debt management program (or DMP).
The debt management program is another massive advantage of enrolling into credit counseling.
A DMP is fairly straightforward after you enroll in the DMP, and the credit counselor negotiates lower interest rates you close your accounts.
To know how does credit counseling work you can get help to reduce your monthly payments to your creditors and begin paying the credit agency one payment.
The organization will then disburse the funds according to the terms of the DMP.
Credit Counselling and Saving Money
Many counseling agencies can get you some significant savings.
They may state that they reduce your debt by 50%-60% and you’ll be “debt free’ in little as two years.
On the other hand, realistically the industry average is you’ll be able to reduce your debt by 20%.
And the DMP usually has a turnaround of approximately four years to be free of your debt.
Subsequently, another benefit of enrolling in a DMP is the lowering of interest rates.
The interest rate on a credit card that has been defaulted on is usually in the range of 30% to 50%.
Whereas, after enrolling in a DMP, a seasoned credit counselor can negotiate a lower interest rate.
This means that your payments are a more manageable dollar amount reflecting your earnings.
Credit Counseling Scams
Unfortunately, there is some fly by night credit counseling agencies which are seriously lacking in the ethics department.
There are some red flags, or signals that you should be cognizant of in your search for an agency.
Watch out for illegitimate companies.
Some of the more obvious red flags are:
- They refuse to provide any references or contact info to testimonials.
- They assert that they can decrease your debt in by a ridiculous amount in a ridiculous amount of time.
- Poor rating on the BBB or several poor reviews on the internet.
- You received an unsolicited email or phone call from them and they have no website.
In the end, your financial future and freedom sit in the palm of your hand.
Therefore you need to make the proper decisions at the right time.
Credit counseling is a great alternative to bankruptcy or financial ruin.
In conclusion, it won’t hurt to provide a professional t credit counseling agency a buzz to speak to them directly about how does credit counseling work.