Credit Counseling
How does credit counseling work?
Credit Counseling works much like Debt Management. These programs are structured
to help people repay their debts by negotiating the interest rate to a lower amount.
The programs will range anywhere from 5-7 years depending on the amount of the debt.
You make one monthly payment that is dispersed to your creditors.
Like Debt Management, Credit Counseling has a 70% failure rate because if you are
late or miss one payment your interest rate returns to the original amount as when
you entered the program.
The credit counseling breakdown
Credit Counseling; Are they really non-profit?
Will Credit Counseling hurt my credit?
The credit counseling breakdown
Many people chose credit counseling as their method of relief because it has been
around for quite some time. People have heard of or know someone who has gone through
credit counseling.
There is usually no immediate monthly relief with credit counseling. The following
is an example of what you can expect with a credit counseling program:
If you had a card that has a $5,000.00 balance and a 30% APR it would take you 15
years and 4 months to pay it off by paying the minimum payment of $125.00. (the
minimum monthly payment is calculated based on 2.5% of your balance).
The interest can be negotiated as low as 6% with a fixed monthly payment. What this
means to the debtor is that you will pay the debt off sooner. Instead of 14 years
you are looking at 5 years. Although you pay the entire amount of the debt, you
save several years of paying interest.
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Credit Counseling; Are they really non-profit?
Most of these programs claim to be non-profit helping the client without charging
a fee. That is simply not true. These companies are paid by your creditors. The
amount can range anywhere from 8-15% of the debt enrolled and how much they can
get you to pay monthly. In essence credit counseling companies work on behalf of
your creditor.
Note: I would encourage anyone thinking of using this method to rethink their strategy.
I do my best to provide unbiased education. In my opinion, credit counseling is
a waste of time. These non-profit companies will stress the fact they do not charge
while their CEO’s are making healthy incomes to avoid showing profit at the end
of the year. Don’t believe they don’t get paid. Your creditors make sure they are
well taken care of.
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Will Credit Counseling hurt my credit?