Truths and Myths about Credit Counseling

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Credit Counseling: Truths and Myths

Many consumers lose control of their finances. Some are able to get themselves out of debt and regain control. Others turn to professional help in the form of credit counseling. But credit counseling isn’t always the appropriate choice. If you’re having trouble with debt, it’s time to uncover the myths and truths about working with a credit counseling agency to see if it’s the right solution for you.

Truths and Myths

Many consumers see credit counselors as a panacea to their debt problems – a way to get rid of all of their debt, or at the very least, consolidate all of it into one monthly payment at a lower interest rate. Credit counselors can work with you to review your debts and act as a negotiator between you and your creditors to get a reduced interest rate and monthly payment. These agencies can also help you consolidate your debt by having you make one payment to the agency on a monthly basis, then pay your creditors from these funds.

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However, credit counselors can only consolidate unsecured debts, such as credit cards or personal loans. They are not able to consolidate secured loans, like auto loans and mortgages, for which your house and car are collateral.

Another area to proceed with caution is when a credit counselor suggests stretching out the term of your debt to reduce your monthly interest rate and payment. So, if your debt was scheduled to be paid off in five years, the consolidation may stretch it out to 10 years, which means that even with a lower rate and payment you may be paying more in the long run.

Finding a Reputable Credit Counseling Agency

While there are many myths out there about credit counseling, that doesn’t mean that this service may not benefit you. If you’re interested in finding out more, start with organizations such as:

These certification organizations can help you identify counselors that are certified and reputable. Second, it’s important to understand how the counselor plans to consolidate and reposition your debt to make sure you’re in a better position after the consolidation is complete.

While gathering information from credit counselors is typically free, retaining their services will cost you. The fees you pay for the credit counseling services should be reasonable, affordable and never require an up-front payment. Start-up fees for credit counselors are $50 on average, with a $25 monthly charge for services, according to the National Foundation for Credit Counseling. The fees do not come out of the monthly payment you make to cover your debts, rather you will pay these fees separately.

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For more ideas on how to improve your financial health, check out Quizzle.com, where you’ll learn how to achieve your credit potential and get out of debt faster. And check out these other great money-saving articles: