Credit Counseling FAQ
If you're reading this, chances are you have accrued more debt than you're able to effectively pay down on your own. You're not alone - according to the Federal Reserve, Americans are nearly $2 trillion in debt - that comes out to nearly $18,000 per household.
So perhaps you've started to explore your options, but you're concerned about who to work with and how to make sure they have your best interests in mind. To help you understand what debt relief means and its benefits, we came up with this list of FAQs by consumers like you:
When do I need debt counseling?
There's no specific figure to say exactly when you should seek the services of a debt counselor. You can have as little as $2,500 in debt, or as much as $125,000 or more - when you should seek help depends on a number of factors. You need to consider your monthly income, typical expenditures and any upcoming planned purchases (like a car or home). If you can find a way out of debt yourself, that's great. But if you need help, that's what the debt counselors are for. They can help you formulate a plan and get you on a road to a better financial outlook. The important thing to realize is that if you have out-of-control debts and are only paying minimums each month, or if you are using credit cards recklessly and without discipline, it may be time to get help from the experts. This could not only reduce your interest rates and get you a predictable path to be debt free, but it can also remove considerable stress.
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I've received emails from companies that claim to be able to instantly eliminate my debt. Are these for real?
Be wary of companies that claim they can instantly erase your debts. Debts don't just magically vanish. The smart move is to carefully your debt relief options--whether it's debt consolidation through credit counseling, where you can combine all your debts into one, more structured, and more manageable payment plan, OR, a debt settlement program, where you can try to negotiate with creditors for substantially less than what you owe. Make sure that you clearly understand the debt solution you are using, how soon you are likely to get out of debt, the costs involved, and how debt relief could affect your credit.
How can I make sure that I find a good and reputable credit counselor?
When looking at credit counseling companies or debt consolidation firms, remember that just because they claim to be non-proft, it doesn't mean they always have your best interests at heart. Be wary of any company that pushes you into a debt management plan right from the start - a legitimate company will examine your financial situation thoroughly and determine if a DMP is really necessary, or if there are other, better options worth exploring. And just like with any major purchase, you should shop around and compare rates and fees - and have these put in writing - before you decide to work with one particular company.
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What are the questions that I should ask a potential credit counselor?
- How is my monthly payment determined?
- How do I know if payments are being received by my creditors?
- Who helps me if I have problems with my creditors or accounts?
- Is a debt repayment plan truly my only option?
- What happens if I can't maintain the agreed-upon plan?
- Will all of my debts be covered under the plan, or will certain debts be excluded?
How long will it take to be debt-free?
This is all dependent on the amount of debt you owe, the interest rate you are assessed and how much you pay out each month. Simply put, the more you pay, the quicker your balance will disappear. Your credit counselor will be able to help you determine how much you can afford to pay each month, increasing your chances of paying off your debts sooner than if you only continued to do so on your own.
Is seeking out credit counseling going to affect my credit score?
Yes and no - simply enrolling in a debt management plan to pay off your debt won't affect your credit score. However, it can affect your ability to qualify for new lines of credit. This is especially true if your debt management firm is late in making payments to your creditors - this DOES get reflected in your credit rating, and your score will be damaged as a result.
Like we said earlier, choosing a good credit counselor requires research and the time and patience that would go into making any major decision. Be careful not to select a plan - or company - that will put you further in the hole. But don't be scared off - debt counseling can be a great route towards debt reduction, credit improvement, and healthier finances overall -- if you stick with the program.
The bottom line: Credit counseling is an honorable form of debt relief whereby you actually pay off the total amount that you owe. However, because credit card companies, depending on your financial circumstances, may agree to dramatically reduce your interest rates and waive fees and penalties -- the amount you pay each month may be much less than you currently pay. This could allow you to pay off your debt much faster than you could on your own if you were to continue on the same "monthly minimum" treadmill at higher interest rates.
Request a free debt relief analysis and savings estimate in minutes. Start by answering a few, simple questions here.