Learning About Finance and Money
Five Things To Know Before You Enter Credit Counseling
Jordy De Pijper
If you find yourself struggling to make your monthly debt payments or are simply not making any progress reducing your balances, credit counseling may be a viable option for your financial situation. When you enroll in credit counseling, the company negotiates lower payments and a reduced interest rate on your behalf. You make a monthly payment to the credit counseling organization, who then disburses the money to your creditors. Before signing on the dotted line, keep these important details in mind.
1. Credit counseling does not affect your credit score.
The act of enrolling in a credit counseling program does not influence your credit score. However, if you miss payments before the program starts, this negatively impacts your credit. Make sure you know when the program begins making the payments for you and keep accounts current in the meantime.
It is likely there will be a notation on your credit report that you are in credit counseling. Lenders have access to this information and may consider it when deciding to extend credit.
2. Credit counseling does not fix credit that is already damaged.
If you have prior marks on your credit history for missing payments or permitting an account to go into collections, these derogatory marks will stay on your credit report when you enter credit counseling. The program is not capable of removing prior credit damage; instead, it seeks to minimize future damage.
You can dispute negative information on your credit report that you believe is incorrect.
3. There are fees associated with credit counseling.
Credit counseling companies generally charge a fee for their services. An initial sign-up fee and a small monthly fee are to be expected. Fees do vary, and the fees associated with a non-profit credit counseling agency are generally much more affordable than those charged by for-profit credit counseling companies.
4. Credit counseling cannot fix your situation overnight.
When you sign up for a credit counseling plan, be prepared for a long-term plan. Most debt management plans last for three to five years. However, due to the lower interest rates, you should notice your balance steadily going down each month.
5. You must make and follow a budget.
When you enter a debt management plan, you agree to close your credit cards. The credit cards that you may have used to cover unexpected expenses in the past are no longer available. It is important to make a reasonable budget that encourages you to live within your means.
If you find yourself drowning in credit card debt, working with a credit counseling company can help gain control over your debt. With a lower interest rate and a smaller monthly payment, you finally have breathing room in your budget. Inform yourself of all the details before entering a debt management program.
Click here to read more about local credit counseling services.
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