Credit counseling - Will it work for you

[ Bookmark this page! ] [ get HTML Version ]

Debt negotiation - How to negotiate your debt
Eliminating your debt is a daunting task. What can you do to get out of debt fast? Believe it or not, negotiation along with proper financial responsibility is your foothold out of the rat race. Learning how to eliminate your debt might be one of the most important life skills that you learn because it can bring you happiness and fulfillment. In order to successfully eliminate your debt, you must ... Read debt consolidation article



Debt Problems - Dealing with Debt
Are you tired of attending untimely harassing calls from your creditors reminding you about the due payments? Is making huge monthly payments becoming tough for you? If your answer to the above question is "yes", then you are facing Debt problem. Debts become a problem when you don't know how to manage it and the way out of it.

Human desires are unlimited, there is no saturation point f... Read debt consolidation article



Credit counseling - Will it work for you
"Cut Your Payments in Half!" the headline screams. "Consolidate Your Bills into One Low Monthly Payment!"

When you see ads like this, they are often from Credit Counseling firms. In this article, I'll explain the principles behind the Credit Counseling approach and discuss the main problem consumers face when they join one of these programs.

First, let's get our definitions straight. The term "Credit Counseling" is actually quite misleading, since it has nothing to do with preserving or improving your credit score. In fact, Credit Counseling will often damage your credit, an unpleasant reality that is sometimes downplayed by industry representatives.

Credit Counseling is a debt management program where you make a single monthly payment to an agency. In turn, that agency distributes the money to your creditors on your behalf, ideally at lower interest rates so you can pay off the debt faster. Credit Counseling should not be confused with Debt Consolidation, Debt Settlement, or Debt Termination. Each of these debt programs takes a very different approach from Credit Counseling.

Of all the available debt options, Credit Counseling is by far the most popular, with millions of Americans participating. Does this mean it's the best choice for most people struggling with debt? No! There are numerous problems with this approach.

In recent years, the Credit Counseling industry has been heavily criticized by impartial consumer groups like the Consumer Federation of America. But these criticisms often miss the mark entirely. They usually focus on the aggressive companies that use their non-profit status to trick consumers into thinking they are charitable organizations, or even that their services are free of charge. In reality, these outfits charge hefty "voluntary" contributions, often adding up to hundreds of dollars, plus steep monthly fees as well.

However, I'm not talking here about the bad companies who provide little or no actual "counseling," or the ones that are only in business to make their owners rich. No, I'm talking about serious problems with the actual business model itself. So let's take a closer look at how Credit Counseling works.

Let's say you owe $25,000 on several different credit cards. Let's also assume your average interest rate before you enrolled was 20% (which is actually low these days, especially if you've missed any payments). Your minimum monthly payments are $500, which you've been struggling to keep up with. At this rate, it will take a whopping 109 months (more than 9 years) to pay off your debts, assuming you don't miss a single payment along the way.

You enroll in a Credit Counseling program that promises to get you out of debt faster. But does it? Assuming your creditors agree to participate in the program (not always the case), the real key is the concession they will grant on your interest rates. In prior years, creditors looked more favorably on Credit Counseling and they offered steep discounts off the normal interest rates. But lately they have squeezed the industry, and the concessions are not so good any more. Currently, most of the major players will reduce interest rates down to a range of 7% on the low side to 18% on the high side. We'll use 12% as the average.

So if you keep your payments at $500 per month at the new 12% rate, how long will it take? First, we need to deduct the monthly fee charged by the agency. In this example, we'll use a fee of $25 per month, so $475 of your $500 will go toward debt reduction. The good news is you'll be out of debt faster. The bad news is that it will still take 75 months (more than 6 years) to become debt-free.

But what happens if you can't keep up with that $500 per month? After all, you sought help from a credit counselor because you were struggling financially, right? Let's say you drop down to $450 per month. After deducting the $25 monthly fee, that leaves $425 toward your debt plan. Now you're looking at 90 months (7 years & 6 months), which is not much better than the 109 months you started out with.

So how can credit counselors claim to cut your payments in half? Good question. If you dropped down to $250 per month, you'll never pay off your debt! At 12% interest, the debt will climb faster than your $250 per month can reduce it. The lowest you could go would be $300 per month. However, it would now take 20 years to pay off the debt, hardly an improvement!

In order to truly cut your payments in half, down to $250 in this example, the agency would need to completely eliminate all interest! And even then, it would still take more than 9 years to pay off the balance! So the ads claiming you can cut your payments in half are simply false.

Bear in mind here that in our example, we're assuming you're working with a good company that charges low fees and actually obtains good interest rate concessions from all of your creditors. Even with the best of credit counselors, you're still looking at a 5-9 year program to pay off your debts.

That's why Credit Counseling is usually only effective for people with short-term financial problems. Consumers with long-term financial instability have trouble keeping up with the regular payment stream required to make these programs work. The result? Even the most favorable statistics show that about 3 out of 4 people drop out of Credit Counseling programs before completing them.

If you do decide to join one of these programs in order to obtain some short-term relief, be sure to do your homework first. Here are a few tips to help in your selection:

1. Look for a company that actually provides old-fashioned budget advice and counseling. If they want to sign you up right away without first understanding your budget situation, move on!

2. Obtain copies of the contract and read it carefully before signing up. Make sure you understand all of the fees involved. Are there enrollment fees? "Voluntary" contributions? Monthly fees? Extra fees per account? These hidden fees can add up to big bucks.

3. Make sure they work with all the creditors on your list and not just some of them.

4. Don't be fooled by "non-profit" status. That doesn't guarantee you're dealing with a good company. And it certainly doesn't mean the service is free!

5. Aim to find a local company that you can visit in person. Check out your target company with the local Better Business Bureau.

6. Make sure they provide support after the sale. Try calling their customer service number to see if you can get through promptly.

Remember, you can eliminate your debts if you take a disciplined approach to your finances, make a budget and stick to it, and don't use your credit cards unless you can pay off new balances in full each month.

Good luck in your financial future!

Charles J. Phelan has been helping consumers become debt-free without bankruptcy since 1997. A former senior executive with one of the nation's largest debt settlement firms, he teaches consumers a do-it-yourself method of debt negotiation & settlement. Expert training via audio-CD plus personal coaching helps debtors achieve professional results at a fraction of the cost. http://www.zipdebt.com/article1

What do you want to do?
Bookmark this page before you lose it
Search this site for FREE information
Help spread the word. E-mail this page to a friend

Debt free living - Secrets to getting out of debt

A few times I wonder what sort of credit system moved the global economy 200 years ago. If the intention of getting into a business is meant to 'help' fulfill the needs and wants of someone, I don't see how credit card salesmen can drove more people into debt and backruptcy. Clearly most people fail to have a good understanding of the increasingly sophisticated (and complicated) terms and conditions behind the card they apply for, how it benefits the bank more than the applicant and what the ubiquitous card is best used for.

The 'cashlessness' of the advanced world surely works its illusions into the minds of those caught up in the disease of consumerism, who found it too easy to buy anything anywhere with a flash of the card without realizing the interest incurred to the bank everytime a purchase is made. Before you get the math right, you must get personal spending principles and habits right first, and only then you will attain self-awareness and a conservative mindset that lights up a red warning in your head just when you are about to make a purchasing decision.

Here are 5 tips for you to get a headstart:

1) It's not how much money you make (or spend); it's how you can keep. I didn't say this. Robert Kiyosaki said it. Far too often poor people never carry happiness within themselves and depend on external sources for their own happiness, so they either buy to impress others or get a certain 'nice' indulgent feeling for having new things. Mathematically speaking, if that new thing does not serve a purpose or even a significant function, it is a wasted loss.

2) Forget credit; get debit. A debit card is quite similar to your ATM card in that it deducts directly from your account on purchase and can be used worldwide. The credit card enables you to BORROW money from your bank to fulfill a particularly expensive purchase provided you pay back the loan PLUS the interest incurred in the form of monthly bills. Based on track record, if you have always fulfilled your credit obligations, your credit ratings will get better, leading to better protection and concessions. But unless you typically deal with large transactions and understand your spendings cycle, you are better off making your life simpler just knowing exactly where YOUR money--not the bank's--goes if not into your account.

3) Be conscious of your financial balance. Do a monthly plan-and-review for your savings and expenditure. Those items that you have to buy with your card...how necessary and regular is it? Why is it an investment to you and to other people like your family? What else can be cut down? Sometimes you must realize your financial decisions do impact your immediate loved ones and this is a significant consideration to take care of.

4) Use your card only for emergencies. I don't know how many times I've been reminded by my elders but don't get rebellious for the sake of it.

5) If you are facing a tighter budget, you did better confront the problem sooner than later. Discuss with your immediate loved ones and financial advisor where the finer problems lie and they are sure to help, not to aggravate your situation, because if it doesn't affect you, it will affect them and your relationships.

The debt problem is not one on a personal scale but a prevalent one worldwide. It is a sickness infecting people who grow too worried witnessing the exorbitant increase in the cost of living everywhere they go, whether it's in the New York or Kuala Lumpur, so they keep on borrowing in order to 'stick their neck out'. Wrong thinking: it becomes a vicious cycle that feeds on itself, pushing you closer to losing it all than ever before.

Come one day, you finally wake up from your debt problem when the bank or creditors start knocking on your door, and you don't want that to happen. Stop being influenced by what goes on around you but to take good stock of your financial attitude and well-being. You have a choice not to get involved with your bank 'deeper' than you need. It's time to be happy living within your means. Be grateful for what you have now and work the most out of your current resources, then you will find better use for your pair of scissors than to cut up credit cards.

Justin Koh is a freelance writer whose articles have appear in most major ezines. You can find more of these at: http://www.debtcenter.info

You have permission to publish this article electronically or in print, free of charge, as long as the bylines are included. A courtesy copy of your publication would be appreciated.


Top rated articles for debt consolidation

1. Debt Recovery and Solutions
Debt piled up can lead to a financial crisis. However, there are several solutions available to help you recover from debt. Securing a loan to consolidate your bills can create one low interest monthl... Read debt consolidation article

2. How debt consolidation loan helps to manage debt
Debt is a source of finance that helps you, to fulfill your desires. In the past, you must have taken debt from more than one lender to meet your funds requirement. And now it is becoming difficult fo... Read debt consolidation article

3. Freedom from Credit Card Debt
Credit card debt have you drowning financially? You're not alone. The average American household carries $9,205 in credit card debt, according to CardWeb, an online industry tracker. Not managed prope... Read debt consolidation article

4. Debt Help and Advice - How to be Debt Free
Common questions regarding IVA's (Individual Voluntary Arrangement's)

An IVA is a legally binding arrangement supervised by a Licensed Insolvency Practitioner, the purpose of which is to en... Read debt consolidation article

5. Debt Reduction - Radical Solutions
Are you in debt? Have you run out of options? There are solutions out there, some radical, but one or more may be what you need to help you get out of debt.

1. Bankruptcy. Yes, bankruptcy i... Read debt consolidation article

6. Escape the Debt Trap
Many people fall into the trap every day. They start to use their credit cards more and more, just a little bit at a time. One day they wake up deep in debt. The average American consumer has 9 credit... Read debt consolidation article

7. Debt help and free advice
At some time or another during our lives most of us will overspend and get into debt. Sometimes we can get our finances back on an even keel by cutting down on a few luxuries.

It's a fact t... Read debt consolidation article

8. Personal debt consolidation loan - What to consider
There are a few things to consider before you make the decision to apply for a personal debt consolidation loan. You'll want to make sure that that is your best option for your financial situation. Af... Read debt consolidation article

9. Debt Settlement - Why critics are wrong
After October 17, 2005, a lot of people are going to become interested in debt settlement as an alternative to bankruptcy. That's the date the new bankruptcy law goes into effect, and it means a rude ... Read debt consolidation article

10. Credit card tips on reducing debt
While getting out of debt may seem impossible, there are numerous solutions available that will help consumers become debt free. Individuals who have acquired an enormous amount of debt may consider b... Read debt consolidation article

1. Consider Debt Consolidation
2. Consolidate Government Student Loans
3. When Debt Collectors Cross the Line - Bogus Threats and Illegal Tactics
4. Before you start to consider debt consolidation
5. How to Repair Discrepancies in Your Credit History
6. Debt help - Credit counseling Vs Debt consolidation loans
7. Debt Reduction In Simple Steps
8. Dont Save Money - Pay off the debt
9. Debt consolidation - How to reduce your payments
10. Debt Management and Debt Consolidation

Debt consolidation, debt counseling and debt management in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi,



Credit counseling - Will it work for you
Debt consolidation, debt counseling and debt management services in Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania,

Debt management, debt counseling and debt consolidation in Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Washington DC, West Virginia, Wisconsin and Wyoming.