Making sense of debt consolidation credit counseling is a process that anyone in today's difficult credit market may be considering. This process involves understanding what debt consolidation is and how credit counseling services can help you use consolidation to pay off the loans that you have. One thing is for sure: those who are stuck under a pile of debt need any and all means of getting debt free to happen. Otherwise, they have anything but the type of lifestyle they want to live. Debt consolidation is the method of taking several debts, usually credit cards, and putting them together into one, larger loan. For example, if you have five credit cards, you will secure a new loan for the amount you owe in total on those five credit cards. Then, you take the funds from the new loan, pay off the smaller loans and then repay the one, larger debt.
With debt consolidation and credit counseling, the process is somewhat different. In this situation, you will consolidate your loans into one payment, but you do not place all the loans into one larger loan. Rather, you work with an organization who will handle the payments to your individual creditors for you, while collecting just one payment per month from you. There are several advantages of using this type of service over a debt consolidation loan. Anyone who is in debt may want to consider credit counseling as it can help to pull him or her out of debt faster.
The advantages of credit counseling are numerous, but often it is the fact that the debt can be paid off faster and often for less money that people like. For those who have a significant amount of debt, and the inability to pay all of it offer within a few months, this method can help them to get out of debt for good.
The advantages of doing this are very easy to see. First off, you have a set repayment schedule that allows you to pay off the debt rather quickly. Generally, people are able to make this payment because they have established a budget for themselves with the help of the credit counselor, which is able to be followed. Another benefit is that the reduced interest rates also can be helpful at lowering the amount you have to pay each month. This helps you pay off the amount faster, too.
1. You have an initial meeting with a credit counselor, usually from a nonprofit credit counseling company. They will work with you to determine a monthly budget for you. The monthly budget is designed to determine just how much money you have per month to pay all of your bills. They need to know this to insure that you have enough money left over to pay on the debts you have, and how much this amount will be.
2. After determining if you have enough money left over from your monthly budget to pay creditors, the credit counselor then calls each of your creditors. They work with the creditors to determine if the creditors are willing to stop interest, reduce the amount owed on the debt and finally to determine what an acceptable level of monthly payment is, out of what you owe to them.
3. If the credit counselor can work with the creditors to get each to agree to a set amount of money a month to pay to your creditors, they will make arrangements with you to continue the process. This involves you, as the credit user to make a one time a month payment to the credit counselor directly. This usually is a small administration fee plus the agreed upon debt that your creditors have determined is acceptable to pay down the debts you owe.
4. Each month, the credit counseling company will make an automatic withdrawal from your checking or savings account in the agreed upon amount. This happens without you having to think about it to simplify the process. It is often required that an automatic payment be established.
5. The credit counseling company then makes a payment from these funds to each of your credit card companies on your behalf. This process continues, month after month until the debt is paid off in full. Generally, most debts can be clear within 12 to 36 months, depending on the amount of debt and the amount you can pay each month on the debt.
There may be some negative aspects of working with credit counseling for debt consolidation. For example, you will be unable to use credit for the most part until the program is complete. In addition, you may have a poor credit history because of the program. Over time, this will improve since you will be making regular payments and working to pay down your debt. In fact, some people end up with better credit after the program has been completed because they have made those regular payments, than the credit they had prior to the initial start of the program.
Determining if the credit counseling program is right for you is an important process. The good news is that most credit counseling companies work with you for a free consultation, to determine if your creditors will work with you and if you have the right amount of money to make payment. Many people use credit counseling as their means of getting out of debt and then work to re-establish their credit after they have completed the program with great success. |
