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Credit counseling (“Consumer Credit Counseling”)
The most popular debt management option is Credit Counseling (“consumer credit counseling”). In this debt consolidation procedure, a credit counselor will set you up in a Debt Management Plan (“DMP”). The aim is to consolidate your minimum payments into a single monthly payment payable to the DMP. In turn, the DMP will negotiate a reduction of your interest rates and will disburse a lower monthly payment to each of your creditors. All of your creditor accounts will also be closed, and your open accounts will be restricted for future charges.
Despite all of its hype, people should avoid Credit Counseling based on its hideous track record. According to a Consumer Reports survey, Credit Counseling DMPs have a 70% dropout rate! A reason for the high dropout rate is that the Credit Counselors can only negotiate with your creditors a basic reduction of your interest rates. The average interest rate reduction is 6%, which generally provides people inadequate debt relief. Thus, a Credit Counseling alternative should be considered, especially if you have a financial hardship and excessive high-interest debt.
Although credit counselors claim they can cut a consumer’s minimum payment by 50%, the typical reduction is a discouraging 10-20%. In fact, most consumers drop out in the halfway point of a DMP due to unsatisfactory reductions produced to their debt balances. People also drop out because of the unbearable monthly payments, which aren’t much lower than the minimum payments that they fought to make. The strict debt management plans will also terminate any consumer who violates their agreements by missing a monthly payment.
“DEBT COLLECTORS IN DISGUISE”
Another reason why you should consider a Credit Counseling alternative is that credit counselors primarily serve the interests of the BANKS. Essentially, credit counselors are DEBT COLLECTORS. Most of their compensation comes from participating creditors who collect the DMP monthly payments. Each year, credit counselors collect approximately $5 BILLION from consumers on behalf of creditors who pay them a fee known as “fair share.” This fee can be anywhere from 7-10% for every dollar that a credit counselor manages to collect!
The questionable business relationship between banks and credit counselors is enough concern to make you wan to avoid Credit Counseling. You should also question how long this procedure can keep you in debt. If you’re one of the 2 out of 10 people who manage to complete a DMP, plan to spend 3 to 7 years paying back 1 ½ to 3 times your original debt. Keep in mind that the longer they manage to keep you in debt, the more money everybody makes.
BEWARE OF THE CREDIT IMPLICATIONS
The long-term credit damage that can be caused by Credit Counseling is another valid reason for seeking a Credit Counseling alternative. Although credit counselors will argue that participation in a DMP has no effect on your credit score, below are the REAL FACTS:
When you enroll in a DMP, it indicates on your credit report that you participate in a “Debt Management Hardship Plan.” This results as a NEGATIVE credit item!
The above form of blacklisting will remain on your credit report for SEVEN YEARS. It is intended to warn other lenders that you were unfit to manage your finances. During this long credit reporting period, once a potential lender is alerted that you enrolled in Credit Counseling, they are likely to steer away from granting you any credit.
THE CREDIT COUNSELING ALTERNATIVE
It is also recommended that you avoid Credit Counseling if you have medical debt or business debt. These types of debt are excluded accounts. Plus, not all creditors agree to participate in a DMP, such as American Express. However, if you need more than credit card debt reduction, the National Debt Relief Stimulus Plan can assist you with precise debt relief.
The unique Credit Counseling alternative can also help you terminate medical debt, business debt, and collection accounts at a considerable savings to the balance owing. To learn more about our service, please call 1-800-213-9968 or complete our online form.
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