Credit counseling is a valuable service offered by many agencies throughout the United States. It is a comprehensive approach that helps you get out of debt by exploring your current spending habits and making recommendations to help you achieve a better financial footing. It is a proactive plan that helps you solve ongoing money-related problems and make a long-term budget. It is important to understand what credit counseling is not. It is not a debt consolidation service, nor does it provide credit-counseling services in any way. A credit counseling agency cannot force you to pay off your debts.
There are instances where a credit counseling agency will offer a debt management plan (DMP), or consolidate your loans. This plan is designed to help those with multiple debts to work out a manageable payment schedule for repayment. The DMP usually involves reducing interest rates on balances, combining monthly payments into a single one, and eliminating late fees and penalties. For the most part, a DMP will allow the debtor to get control over his or her finances once again. However, it is important to remember that a credit counseling agency cannot write you a blank check.
Credit counseling agencies may refer you to either a debt management plan (DMP) or a state attorney general’s order (state attorney general). Each of these programs has different components. Consult with a local consumer protection agency to be sure you are dealing with a licensed and certified organization.
The DMP is one of the easiest and steadiest ways to become debt free. In exchange for reduced interest rates and an elimination or suspension of late fees and penalties, the credit counseling agency will work with the individual creditors to develop a payment program. Once this is approved, the agency will distribute payments to each of the creditors over a long period of time. Most credit counseling sessions can take up to an hour. At the end of the credit-counseling sessions, you will need to return to a secure website provided by the state attorney general.
In contrast, a state attorney general’s order does not have any payment plans or programs. Rather, the state attorney general’s office will provide you with a list of all of the creditors who are responsible for paying your bills. Upon receipt of the list, you are required to locate the names of the creditors who are not participating in the DMP and work with them to lower your interest rates and to eliminate late fees and penalties. While this is not a convenient or guaranteed way to become debt free, a reputable credit counseling agency will make every effort to ensure that you will remain debt free after you have repaid your debts.
Whether you choose a credit counseling program that has a DMP or not, it is crucial to contact an experienced professional before making your final decision. You must discuss everything from the terms of repayment to the procedure and timeline of the DMP with your counselor before proceeding. A good agency will work closely with you until you have reached your financial goals. After your meeting with the agency, you can move forward toward a financially stable future.