Credit Counseling

Most people have heard about Credit Counseling, but do you actually know what it is or does? Many people are under the impression that these are non-profit companies that give you a loan to consolidate your debts into a lower payment. This can easily be misunderstood since these companies often use the term debt consolidation in their advertising. This however, is far from the truth! These counseling services are actually your second to last choice in debt relief after self budgeting and a debt consolidation loan because of the lasting impact it has on your credit! I'll explain later after I define this option.

     So, if credit consumer counseling is not a consolidation loan, what is it? It is a debt relief plan. These companies provide a service not a loan. Their service is to negotiate with your current unsecured creditors a reduced payment and interest rate for you. Additionally, they collect a one lump sum payment from you and redistribute the proper amounts to your creditors.

     The advantages to these services are great! For one you get lower payments to your creditors, Two, the interest rate you are currently paying is reduced or even eliminated. Third, late fees are removed and last the accounts you are currently past due on are brought current which improves your credit report. Not to mention they will help you establish a budget!

     However, there are disadvantages to credit counseling you need to be aware of! I eluded to a negative credit impact earlier and now I will explain. If you are struggling with making payments but are not behind on your payments, credit counseling with hurt your credit report. If this is your situation here is what will happen. Once you sign up for credit counseling your creditors will note on your credit report that you are in counseling services and are making reduces payments. Other potential creditors will see this as a sign of trouble and be less likely to give you any additional loans. This effect is quite lasting because it will remain on your report the entire time you are in counseling services which could be years. The last disadvantage to using these services is you will no longer have access to your credit cards. Once you start credit counseling your creditors will suspend your credit access as terms for reduced payments! Now I've noted this as a negative only because credit cards at times are needed for emergencies and their connivence but in reality this step is actually a positive because the goal with credit counseling is to get out of debt. You can't accomplish this goal if you are still charging up your credit cards. Incase you are in a situation where you need a credit card for work or other situation, don't worry there are many options available even if you are in counseling services. Please see the Credit Card section on this website here!

     As I previously stated Credit Counseling is not for everyone. However, if you need help this is definitely the way to go before opting for bankruptcy. I know it seems like there are many drawbacks to this option but given the situation that makes this something to consider, what can you expect? Actually, if you dedicate yourself to learning from the counselors you will gain a lifetime benefit from your time in Credit Counseling. The benefit: Good Money Management Skills!