With all the financial turmoil that has been caused by the recent economic recession, it isn’t surprising that consumers are struggling with their debt in unprecedented numbers. The free-spending, easy-credit environment of the years preceding the recession has given way to high unemployment and underemployment, a floundering housing market, restrictive lending guidelines and millions looking to pay down their debt rather than spend. The loss of income and inability to qualify for new loans have left consumers buried with high interest credit card debt that in far too many cases will require decades to pay off, given their current repayment capacity and the seemingly dismal prospects looking forward.
The situation as it presents itself defies a tolerable solution, and droves of borrowers are now turning to the debt relief industry for answers. One of the debt solutions that seems to hold the most promise is commonly known as credit counseling. Aside from the actual financial counseling they provide, the credit counseling agencies also offer a debt management plan (DMP) that offers a potent mix of benefits that successfully deal with many of the most troublesome aspects of the unsecured debt problems so many are now facing. Here are some of the most frequently asked questions about credit counseling and DMP’s, and their answers:
1. Am I a good candidate for credit counseling?
Consumers can get a good idea whether or not they could benefit from consulting with a credit counseling agency by watching their finances for certain warning signs. Here are some of the most common:
- You are current with your payments now, but you are getting closer to being late as time passes
- You already had some late payments and things don’t seem to be changing for the better
- You need to take out cash advances at high interest rates to make ends meet
- You transfer balances from one credit card to another just to avoid having to make a scheduled payment
- Your finances have taken a downturn and you see the potential for future problems
2. What should I expect to happen in credit counseling?
The first thing that will happen is that you will be assigned to a credit counselor, who will collect all your relevant financial information. From doing this they can get a good idea of the state of your financial situation and can then suggest some possible remedies. Here is some of the information you will need to bring:
- The sources and amounts of all your monthly income
- Your detailed monthly expenses
- The balances you owe on all your accounts
- The interest rates you are being charged on your accounts
- The minimum payments and due dates on your accounts
3. How does credit counseling help with my debt problem?
Your credit counselor will be able to suggest some possible answers to your particular situation. If your counselor determines that your financial hardship requires it, he may recommend that you enroll in a debt management plan (DMP). Credit counseling agencies maintain close relationships with creditors and are able to get relief for their clients in a number of ways with a DMP:
- Your interest rates on your unsecured debt can be reduced
- Your accounts can be paid off in just 5 years or less
- You will no longer be charged over-limit and late fees
- You will get the benefits of a consolidated monthly payment
- You will get relief from collection phone calls
- You can avoid bankruptcy
4. How will a DMP affect my credit?
Most consumers are very concerned about the impact that a DMP will have on their credit. According to the Fair Isaac Corporation (FICO), the fact that a consumer is paying their accounts through a DMP will not have any effect on their credit score at all. The fact that some of the accounts are being paid through a DMP will be noted on the credt report, however, and this information can be viewed by any of your prospective creditors. Some of them may interpret it positively, as a sign that you don’t just walk away from your debts even when you are experiencing a financial hardship. Others may choose to interpret it less favorably as a sign that you may not be a good risk for acquiring more debt.
About the Author: Alan Winkler is a writer for RightStartllc.com. Right Start helps indebted consumers improve their financial situation through debt relief solutions, such as credit counseling and debt management. Their blog also serves as a resource for helpful debt advice and tips, offering educational articles on the debt relief industry and other financial topics.
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