How Consumer Credit Counseling Works

Searching for a way to regain financial stability and eliminate debt? Credit counseling assists individuals in getting out of credit card debt with a high-interest rate. How consumer credit counseling works is that they evaluate debts, credit usage, and budget, to craft a viable solution.

What Are the Steps, and What’s Involved?

Resolving credit card debt begins with a financial consultation where a professional counselor reviews your finances. Then, they help you understand what options are available to get out of debt quickly.

If you are unable to pay off balances on your own, they can assist you in enrolling in a debt management program. If this is the case, then the credit counseling agency becomes the mediator between yourself and the creditor.

A repayment plan is established that is acceptable for both parties. A credit counselor will also negotiate to eliminate/reduce interest charges allowing you to pay off your debt faster.

 

 

Types of Services

The types of consumer credit counseling available fall into non-profit and for-profit sectors. The difference lies only in how they earn money. Agencies that are for-profit earn money through upfront fees, which makes their plans more expensive for the consumer.

Non-profit companies obtain their support through grants. Credit card companies will give grants to nonprofit credit counseling businesses to help get people out of credit card debt. This translates into lower fees for the individual.

Most non-profits have a one-time evaluation provided for free. Generally, the only fees involved are to set things up and construct a debt management plan.

If you are struggling to gain financial stability, you may want to invest in the non-profit route. There will be less out-of-pocket expenses, and you don’t want to receive a large bill that you need to pay at the end of the process. You can learn more about this at https://www.bills.com/.

When Would You Use Consumer Credit Counseling Service?

Enrollment in a debt management program won’t always work for every situation or for all types of debt. Even with unsecured debt, a certain set of factors need to be applied for success. While circumstances are broad, they aren’t always applicable.

To use it you must:

  • Have a minimum of $5,000 in unsecured debt.
  • Must have some source of income for reduced monthly payments. If you aren’t employed, this will not work.
  • Most accounts need to be with an original credit issuer.
  • Many of your financial challenges need to be caused by credit card debt.

Also be aware of non-profit credit counseling services that are a scam. There are many out there preying on different people.

 

 

Will This Hurt my Credit Score?

Credit scores aren’t a factor when qualifying for credit counseling. Even with a credit check, your score will not be affected. There is no minimum score involved in enrollment, and if done properly, the best program will have a neutral or positive effect on credit.

Also, working with a debt management counselor won’t have a negative impact on obtaining new financing such as mortgage or car loans. The only thing you can’t open are new credit cards while enrolled.

What Are the Advantages for For-Profit Credit Counseling?

While is varies depending on the company, in some instances they pair credit repair with counseling. To legally do this, they need to have state-licensed credit repair attorneys and a certified credit counselor on staff.

Others may work with you to improve your finances. They tend to be more geared to financial counseling as opposed to debt or credit counseling. They will offer financial planning to their plan, which help establish better long-term strategies for staying out of debt.

How consumer credit counseling works is by examining your finances, engaging in a negotiation process with creditors, and creating a plan to get out of debt. It provides a great way of eliminating debt without the need to file for bankruptcy.