Needless Debt

Needless Debt is beginning a series of posts that will explore and explain the various debt relief options that you hear about. Many of these programs are becoming increasingly popular as big businesses are being built around them and advertising dollars are being spent. The series will be covering: credit counseling, debt consolidation, debt settlement, bankruptcy, home equity loans, credit card balance transfers, doing nothing, and finally we’ll examine a do-it-yourself program. The first entry in the “Learning About Debt Solutions” series will cover the topic of credit counseling.

About Credit Counseling

Credit counseling, also known as debt counseling, is a program that aims to educate the consumer about managing their debt and how to avoid debts they cannot repay. They will help you setup a budget and develop a plan for repaying your debt. Many of these programs also work with your creditors to create a specific debt management plan. These plans generally include a reduced interest rate and a reduced monthly payment paid over a longer period of time. These plans may also incorporate your multiple payments into one payment.

Cost

To get started in most credit counseling programs you will have to pay a one-time setup fee and usually you will also pay monthly fees to stay in the program. However, you will also see a lot of “non-profit” debt management programs being advertised. Be wary of these programs. There have been many accusations that these programs are being paid on the back-end by the credit companies themselves. Therefore, many of these programs are nothing more than debt collection agencies.

Affects on Credit

Simply enrolling into a credit counseling program will not affect your credit score or report at all. If you are just receiving advice and help about budgeting and a debt payment plan, you’re credit report will not even report this. However, if you do end up in a Debt Management Plan you may notice a difference. In most cases there will be a note on each account that you enroll into the Debt Management Plan showing your participation in such a program. While this may or may not directly affect your credit score, many lenders may use this in their decision to provide you with financing. The good news is that once you pay this account completely off, it typically won’t have any lasting effects.

Conclusion

Depending on your situation, debt counseling may be a solution for you especially if you are still current on your payments and heading into a period of hardship. This program is also helpful if you are just looking for some extra advice on your debt situation. However, if you are behind on your payments and cannot make your current monthly payments, you may consider another option. Also, you should be on the lookout for credit counseling companies that are really just collecting for credit agencies. Next time we’ll take a look at debt consolidation.