Credit Counseling – Can it help me to become Debt Free?
What is Credit Counseling and how it works? It starts by simple discussion between consumer and professional counselor. The counselor examines the overall financial status of the individual by counting the difference between all the financial obligations and total income. Items that are taken into account while calculating your financial ability:
Once all the data are gathered, the counselor prepares a realistic payment plan that comes within your budget. The payment plan emphasizes on reducing the rate of interest mainly. Apart from this, counselor tries to reduce the principal debt amount by eliminating late fees, over the limit charges and other financial penalties. The payment plan is made such a way that creditors are also benefited from it. Most mainstream creditors prefer to work with consumer credit counseling agencies because it saves them a lot of money and energy. Secondly, creditors get a fair portion of their fund back through credit counseling services, whereas, if the consumer files bankruptcy, the chance of getting the money back becomes less. Who need credit counseling? Anyone who has already missed the payment date or the consumer anticipating a possible hardship in near future can benefit from the service. It is always advised to go to a counselor before any negative item enters into credit report. So if you are still current with your accounts and afraid of falling behind, immediately see a counselor to find a suitable way out and protect your credit. Remember, once your creditor takes you to court and wins a judgment, it will be reported as a public record in your credit file and stay there for 7 to 10 years. Before the debt goes beyond your capacity and compels you file bankruptcy, go for credit counseling and stay creditworthy forever. Read the warning signs that help you decide if you need credit counseling or not. How will it affect my credit score? As far as FICO Score is concerned, it does not matter if you are enrolled in credit counseling program or not. FICO scoring model does not count this data. However, your creditors are likely to report your account as under credit counseling or debt consolidation program. There are few lenders that do not prefer credit counseling item on your report. But Debt Consolidation Care Community says that the status definitely shows your interest to pay your bills. So you are going to get privilege in future. Moreover, new bankruptcy law, 2005 has made it mandatory to undergo credit counseling session before filing bankruptcy. Now lawmakers would not have made such an amendment if credit counseling is of no help. How much will it cost? Two types of agencies are there in the market - non-profit and those who works against a nominal fee. Community members frequently ask the question why an agency would work without a fee. The answer is simple. The counseling agencies usually receive a particular portion of the fund paid to the creditor, known as Fair Share. For example, 16 PLUS – WFNNB offers Fair Share of 5% on each transaction. However, there are few agencies that pretend to be non-profit, but keep a part of consumers' money with them. Beware of such companies. Ask these questions to your counselor:
Work with a reliable agency so that you can get the most out of the service. Time taken to complete the program: It is pretty difficult to anticipate how long it will take to get you out of debt. Several factors work behind it. Let's take up an example: if you pay $ 500 per month it will take 10 months to repay a $ 5000 loan in full. But, if you decide to pay $ 250 per month, the repayment period is likely to be doubled. Usually counselors design the program in such a way that you can become debt free within 2 to 4 years. Try the debt to income ratio calculator and get a rough idea on how long it can take for you to get debt free. For any query please ask our community, a group of people with similar experiences. |
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