Anyone who has been trying to get out from under a mountain of debt knows that there is help available. You can find more than your fair share of agencies out there to guide you out of debt if you want. The challenge is to understand what each of these services is offering so you can choose which option will work best for you.
No doubt, it can all be quite confusing. If you’re looking at getting a credit counselor, you need to cut through the hype to see what they are really offering.
- They Can Cut Your Payments In Half
The truth is that a good credit counselor can help you improve your financial situation. They can lower your interest rates and probably get some of your fees waived, but it is rare that you will see significant cuts in your payments. The belief that you can get those payments cut in half is a common myth. It is not realistic to expect that they can seduce your creditors that much.
- It Is Always The Best Solution
According to one study nearly 80% of those who sign up for a credit counseling program, fail to complete it. When you use a credit counseling service, they will review your debt and prioritize it according to which bills are needed to pay first. You will have to meet a whole list of requirements that may be difficult to follow. Make sure you can meet those expectations before you sign on.
- They Can Negotiate Lower Payments
Many believe that a counselor is more skilled at negotiating than they are. Those that can do this are not in the debt management business but in the debt settlement agency. With debt settlement, you actually transfer a specified amount of money each month into an escrow account. When the balance is enough to settle one of your debts, they will release the money to cover it, but it is not a debt management service.
- It Won’t Damage Your Credit Report
It may not directly affect your credit score, but because you will be required to surrender your credit cards there could be some negative impact. Most credit counselors will encourage you not to add any new credit until you have completed the plan, so the consequences of adopting this type of program does have the potential of at least some damage to your credit score.
- You Have To Use A Credit Management Plan If You Want To Get Out Of Debt
Many believe that lenders will only work with credit counselors, but most will also work with individuals too. So, the belief that you can only negotiate new payment plans through a counselor is totally false. Creditors are appreciative of customers who take the initiative and contact them directly. The only drawback is if you have a lot of debt, you’ll have to do a lot of phone calls, which could consume much of your time.
- Credit Counseling Is Free
While most counseling services are nonprofits, there is usually some fee that must be paid. It could come in the form of a monthly payment or it could be a pretty stiff fee that must be paid up-front. Bottom line, you will usually have to pay something. More reputable companies will try to keep the costs down for your benefit, but don’t expect something for nothing.
- It Will Improve Your Credit
If you stick with a debt counseling service your credit will improve over time. However, it will not be immediate, and it will not be due to the efforts of the counselors. Your credit is already damaged from late or missed payments and only time will heal that wound. Time spent paying down your debt in a timely manner. That is going to be the best way to improve your credit score.
- It Is Painless
This could be both true and false. In most cases, getting out of debt is going to hurt. Sacrificing your credit cards, sticking to a budget, and seeing the plan through to completion can be a challenge. It’s going to take years of limiting yourself and saying no to things you really want; all without taking on any new credit in the process. Yes, it’s gonna hurt.
While there is always the faster and cheaper option of debt settlement to choose, but it has its own pitfalls as well. In either case, finding out exactly what’s involved in utilizing the services of a debt counselor could make all the difference.