Credit counseling services to consolidate debt
Struggling with credit card debt is never a good feeling. When researching various ways to consolidate debt, many consumers often consider credit counseling services as a means to repay the balances they owe on. When exploring the different options to find help with debt, it’s always good to do proper research before moving forward with a company or service. We’re writing this article today in an effort to show you the ups and downs to consumer credit counseling services amongst similar programs.
Credit counseling was formed with the intentions to help consumers lower interest rates, minimum payments while consolidating all monthly obligations into one lump sum. When entering these types of programs, it’s important to know which programs are good for the consumer, which ones are bad and why. In short, we’ll begin with 4 tips on why a credit counseling service is recommended when you want to consolidate your bills and why you should avoid solutions such as loans and bankruptcy.
4 benefits to credit counseling services
Benefit 1: Lower your minimum payments
Many consumers often look for these debt relief programs, in an attempt to lower minimum payments. These programs will indeed lower the consumer’s minimum payment tremendously. The credit counseling services notify the creditors of your commitment and in turn, lower the minimum payments that are due each month. When trying to lower your minimum payments, the credit counseling approach is the ideal solution for consumers wanting to consolidate debt.
Benefit 2: Lower your interest rates
Most of the consultations we go through, are from consumers who have extremely high interest rates. When consumers are making the minimum payment due each month with such high annual percentage rates, it’s only natural to panic and look for a method in having them reduced. The credit counseling services work wonders in reducing the interest rates for consumers. Credit counseling will notify the creditors of your enrollment and request that the interest rates are reduced to something more realistic for the consumer. The average interest rates for consumers tend to be in the 17% range, with many in the high 20s. When you consolidate debt the interest rate will usually be 10% or less in most cases.
By enrolling into these programs, consumers will find most of the minimum payments they do make, go towards the actual balances owed. When trying to repay your bills, it’s important to make sure that the payments you do make go towards the actual balances owed. By making the minimum payments through a credit counseling program, you’ll see a larger portion of the minimums go towards the actual balances owed.
Benefit 3: Get out of debt sooner
With the combination of both benefit one and two, consumers will see more of their minimum payments go towards the actual balances owed. Because of this, it’s only natural to see the payback length be reduced dramatically. With the recent laws that passed requiring the creditors to show how long it will take to repay the debt owed, many consumers are making payments for ten or more years. When you consolidate debt, these programs are designed to aid the consumer in getting out of debt in a matter of just a few short years.
Benefit 4: Keep your credit in good standing
The credit counseling services do not harm the consumers credit rating. According to the Fair Isaac Corporation, it clearly states “Whether or not you are participating in a credit counseling of any kind”. Unlike programs that work to cut the consumers balance in half or get out of the debt entirely, this program only works to reduce the minimum payments and interest rates.
4 steps to consolidate debt
Step # 1: Consult with a company
When interested in credit counseling services, consulting with a debt management company would be the first step of contact between the consumer and the firm helping you. The quoting process usually takes a half hour on average. The consulting process will require the consumer to disclose who it is they owe, the balances they have with that creditor and whether or not they are current or behind. Once the debt specialist obtains this information, that person can issue a quote to the consumer. Accurate quotes can be given without the need of account numbers.
Step # 2: Enrollment procedure
When enrolled, the credit counseling company will send a proposal out to the creditors which notifies them of your enrollment. The credit counseling service is often administered by a non-profit, but many for-profit companies provide this service as well. Regardless, the quotes should be fairly similar regardless of which type of company status you were to choose. When going through the enrollment procedure, it’s always a good idea to send the statements to the debt management company to ensure that everything is accurate. When you send the statements to the company managing your debt, this allows their management team to insert the full account numbers and most recent balance which is displayed on your actual statement. Remitting the statements will eliminate most inaccuracies.
Step # 3: Proposals, acceptance
Although the creditors have the ability to accept or decline a proposal, in most cases they accept and the consumer is put on the new terms initially quoted. When the proposals are received by the creditors, they activate your enrollment in the credit counseling service and notify the company servicing your account. When this is done, the interest rates and minimum payments will then be reduced to what you were originally quoted. This process is usually done by US Mail and can take up to two weeks from when the company sends out the proposals.
Step # 4: Keep with the program
Remember, the company you selected to consolidate debt is going to work for you, so sticking to the program is vital to ensure a proper pay off. When the interest rates are reduced, try and find ways to pay more than the minimum required payment. When doing this, consumers will see so much more go towards the actual balances owed. When consumers seek out credit counseling services, they are mostly people whom are just tired of being taken advantage of when it comes to creditors. Getting on these lower interest rates and minimum requirements is a key step to the credit counseling programs.