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About Credit Counseling

 

Credit counseling services are not free.  Almost all agencies charge a monthly fee for servicing accounts.  The consumer should beware of agencies that charge additional fees for educational services.  Although companies are non-profit they must still pay their employees and pay for services associated with managing the debt management plan for its clients.  Credit counselors do receive funding from creditors.  However, during the past several years this funding has decreased substantially.  Thus credit counselors have had to increase their fees charged to consumers.  It is important that the credit-counseling agency disclose the fees it charges.

 

Consumers with delinquent accounts who can only afford to pay the minimum monthly payment are ideal candidates for credit counseling.  These consumers will benefit for several reasons. 

 

1. The creditor accounts will be paid in full in approximately 5 years, depending on the creditor.  Some creditor accounts will be paid sooner and some will take a little longer.  These results are achieved from several benefits provided by a credit-counseling program.

2. Interest rates are often substantially reduced.  This permits more money each month to go toward paying down the balance than toward the formerly high interest rate.

3. Creditors re-age accounts back to a current status after several on-time payments through the credit-counseling agency.  This permits the consumer to make on-time payments for the minimum amount without the need to pay extra to catch the account back up.

4. Late fees and over-the-limit fees are often eliminated.  These fees add to the high balances.  By removing these fees the balances can come down faster.

 

Thus, accounts that often take more than 20 years to pay off if a consumer continues to make only the minimum payment are often paid off in 5 years or less.  This is a 75% faster pay off time.  However, make sure that the plan designed for you actually benefits you and does reduce your debt burden faster.  Ask questions and make sure that you are comfortable with the credit-counseling agency.  Ask about the agency’s track record and find out if the agency has a customer service department that addresses clients concerns.  Some agencies outsource their customer service and accounting operations to third parties.  These agencies do not maintain control over their client needs after enrollment.  Look for agencies that control their customer service and accounting departments.