Credit Counseling

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Understanding Credit Counseling Programs

• Counseling agencies offer programs, through which, they will work with you to establish a repayment plan that is agreeable to both you and your creditors.
  
  
• Counseling plans can be very effective in eliminating the stress that is caused by creditors and it assists in establishing a consistent payment pattern, which may help a consumer who is at risk of being sued by his creditors.
  
  
• A counseling agency will negotiate with your creditors in an attempt to get them to reduce your interest rates and reduce monthly payment requirements.
  
  
• After assisting you with your budget, they will send proposals to your creditors as a means of getting your creditors to accept the new, more favorable, repayment terms.
  
  
• Generally speaking, the credit-counseling agency calculates proposed creditor payments based on pre-determined criteria that the creditors require. The creditors will only accept the proposals and give better repayment benefits if the proposed payment meets their criteria.
  
  
• Counseling agencies are often successful in getting credit card and loan companies to stop charging costly penalty fees such as late and over-limit fees.
  
  
• Credit-counseling agencies can only obtain more favorable repayment terms on unsecured debts. Unsecured debts are debts that are not backed by collateral such as credit cards, collection debts, medical bills and unsecured loans. They are most successful at helping you with credit card debt.
  
  
• For debtors who are behind on their obligations, they can often arrange with some creditors to have their accounts re-aged or brought back to a current status as they are reported on a credit report. However, this does not mean that the agency will "erase" marks that are pre-existing on a debtor's credit report. The criteria for bringing the accounts current, differs from creditor to creditor.
  
  
• Debt Management Programs require that you stop using your line(s) of credit. Your creditors will cancel or freeze you accounts when you are enrolled on a Debt Management Program.
  
  
• When enrolled in a counseling plan, you send payments to the counseling agency, which then distributes the payments to the creditors to have them applied at the more favorable rates. It is your responsibility to get payments to the counseling agency on time. If you are late with payments to the agency, your payments will usually still be applied at the lower interest rates but penalty fees may still be applied and your account may not be brought back to a current status.
  
  
• Typically, repayment plans will enable consumers to get out of debt in 3-5 years, assuming they stick to their payment plan.
  
  
• Credit counseling has proven to be an effective way of reestablishing credit and saving debtors a lot of money in interest and penalties.
  
  
• Credit Counseling agencies request voluntary contributions to help offset the costs of providing the repayment service for debtors.
  
  

Your Responsibility when on a Counseling Program

• Provide creditor information to the agency, including the name of the creditor, the address, the account number, the balance, and the type of debt.
  
  
• Provide information about their household budget.
  
  
• Make payments on time and in full each month.
  
  
• Monitoring their monthly statements to verify that payments are being applied on time.
  
  
• Where applicable, the debtor is responsible for monitoring their monthly statements to ensure that their interest rates have been reduced, penalty fees are not being applied, and the accounts have been brought to a current status.
  
  
• Advise the agency when an account has been paid off.
  
  
• Remove credit insurance on credit card accounts
  

How will being on a Credit Counseling program effect my credit?

• Credit counseling exists to assist creditors in collecting debts and assisting debtors in preserving credit.
  
  
• Creditors reserve the right to report to the credit bureau that the debtor's account with them is enrolled on a credit-counseling program. In rare cases, creditors may report that you are late on payment obligations.
  
  
• Most creditors view credit counseling as an acceptable alternative to reducing the burden of debt, or they would not agree to adjust the repayment terms.
  
  
• For debtors who are behind on their payment obligations, most creditors will arrange to bring them current after enrolling in a counseling program.
  
  
• Credit counseling will not immediately or instantaneously improve your credit score but over time it should help you improve your credit score and make progress towards eliminating debt.
  

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