Do you feel that most of your monthly credit card payments are going to unfair and high interest rates? You are definitely not alone! If you are one of many who called their creditors asking for a lower interest rate and was denied, credit counseling may be an option.
What is Credit Counseling?
Consumer Credit Counseling Services (CCCS), sometimes called Debt Management, is an option to help you get a more reasonable interest rate while also reducing how long it will take you to pay off your credit cards. However, as with all debt relief programs,it’s important to get all the facts before committing to a credit counseling plan.
Benefits of Credit Counseling
Lower Interest Rates
- A Debt Management Plan offered by a credit counseling organization is normally able to get you lower interest rates. However, keep in mind that the interest rates are usually pre-negotiated rates offered by only some banks and credit card companies. They are not individually negotiated.
One Monthly Payment
- Instead of having to make multiple payments each month you’ll only have to make one payment to the credit counseling company who will then forward it to each of your credit card companies. This might help out if you’re like the rest of us with what feels like a hundred different bills each month. Also, when you’re planning a personal budget it’s much easier to use one payment for all the credit card payments.
Pay Off Entire Credit Card Balance Within 60 Months
- Have you ever noticed how long it will take to pay off your credit cards? Using the minimum payment only, it may take longer to pay off credit cards than a mortgage. With a debt management plan, you’ll be able to pay of credit cards within 60 months. This may make the payment a tad high, but more of it will go towards principal than interest. Plus, 60 months is the maximum length a creditor will offer a debt management plan.
Disadvantages of Credit Counseling
Credit Counseling Completion Rates
- The odds are against you before starting a Debt Management. It’s been reported that credit counseling programs have completion rates in the 20% range. So 8 out of 10 people won’t finish their program and may find themselves exactly where they started before enrolling!
Credit Counseling Has High Payments
- If you aren’t able to make a substantial minimum payment, normally 2-3% of the balance you owe, a debt management plan may be stretching what you can afford. This is usually the reason for high failure rates for credit counseling. In many cases, the monthly payment remains close to what the minimum payments were so there is rarely monthly relief (which is normally why people reach out to a debt relief program).
Before enrolling into a debt management plan you need to be sure. If you’re barely making the minimum payments, credit counseling likely won’t be a good fit for you.
Your Credit Will Be Impacted
- Your credit score will not necessarily be affected in a debt management plan. However, banks and lenders consider a credit counseling program in the same light as a Chapter 13 Bankruptcy. In fact, to qualify for Bankruptcy you must first enroll into credit counseling.
Banks are likely not to lend to those in debt management plans because they view the person’s financial situation as fragile since they are seeking assistance.
Of course, if you are reading this article you probably aren’t looking to borrow more money (which is what you’d probably use your credit for)– you need to put minimum payments behind you!
Alternatives to Credit Counseling?
Credit Counseling is a great option if you are making much more than your minimum payments and your budget isn’t tight in other areas. Again, if you’re like most people in this tough economy this program won’t help your cash flow.
There are other options besides credit counseling like settling credit card debt through a debt settlement program or even filing bankruptcy.
Next Option: Bankruptcy –>
