America Debt Consolidation

Credit Counseling Basics

More and more consumers struggling with debt are pursuing credit counseling as an alternative to bankruptcy. Since the federal requirements for bankruptcy qualification are becoming increasingly restrictive, a vast number of credit counseling companies are springing up, and tailoring their services to help indebted consumers overcome their financial difficulties, while keeping nagging creditors at bay.

Most people who seek credit-counseling services are barely able to meet minimum monthly payments on multiple credit card accounts. Some consumers are also failing to meet other daily expenses such as gas or groceries. Relieving their credit debt through the professional guidance of a credit counselor can free up enough money to help a consumer afford all of her/his basic living costs.

As a debtor, you must bring all relevant documents and records to your credit counselor. The credit advisor will then closely examine your financial standing. After adding up all past due balances and required monthly payments, she/he will come up with a projection of your potential savings should you choose to go the consolidation route, and determine whether it’s more advantageous for you to pursue a debt consolidation program or to file for bankruptcy. Since filing bankruptcy can mar your credit record for up to 10 years, most credit counselors will advise against it, and will help you find a less drastic solution.

Your credit advisor may not only offer you advise on the best plan of action for reducing your credit card debt, but she/he can help you establish a budget and educate you on how to use credit more sensibly in the future.

If you decide to consolidate your credit card debt, your counselor will calculate a single payment amount that she/he can apply toward payments to your creditors. Next the counselor will negotiate with your creditors, in an effort to secure lower interest rates, reduce late charges and overage fees, and propose a more manageable monthly payment amount, which will come out of the lump sum that you’ll pay to the credit counseling service, most likely on a monthly basis. Creditors are surprisingly flexible when it comes to these terms, because they’d rather not take on the added expense of hiring a collection agency. Besides, the more traditional methods of a collection agency are not guaranteed to prove effective, especially if the debtor is simply unable to afford to meet the collection agency’s repayment terms.

Credit counselors don’t offer loans, nor do they contact credit bureaus. Instead, they correspond with whomever you owe money to and establish a repayment plan that is consistent with what you can afford. Additionally, they can help you control your future spending so you don’t land yourself deeper in debt. Credit advisors don’t offer you a shortcut to eliminating your debt, but rather a long-term credit card debt management plan and the skills to follow through. Likewise, through the guidance of a professional credit counselor, you will come to better understand billing statements and gain insight about your financial situation. You will come out of the experience a better-informed consumer, so you can avoid repeating the mistakes that landed you in debt in the first place.

Non Profit Credit Counseling Agencies

An on the level, or legitimate, non-profit credit counseling agency will not charge you an upfront fee. Not for profit credit counseling companies receive payment from creditors in the form of a fair share distribution fee of around 10%. The creditor pays the credit counseling agency because the credit counselor is helping the debtor find a way to pay off the creditor. By subsidizing a not for profit debt consolidation company, the creditor enables the consumer to apply the bulk of his or her money towards monthly payments on the principal balance owed.

As you, the consumer, begin to repay your debt, the agency may collect from you a “donation”— a monthly fee of approximately $5.00 to $10.00 per debt. However, you may be able to negotiate this fee.

Some more questionable non-profit agencies also ask for a one time payment equal to the amount of a single monthly payment on your consolidated debt. But, ideally, a not for profit credit-counseling agency will get most of its funding from other non-profit organizations, fundraising, and grants from the government.

A good not for profit credit counseling company knows how to properly close accounts, make additional preparations prior to the consolidation process, and follow through on initiating, as well as processing, proposals. What’s more, it will educate consumers about budgeting, by drawing up a customized, comprehensive financial plan for you, thereby eliminating your need to file bankruptcy. A reliable non-profit credit counselor will also offer financial help and advice regarding credit and money management, and consumer debt relief.