- 3 min read
- Reduce high interest rates on your credit cards.
- Consolidate you credit card bills.
- Make sure that you can afford the payments
Consumer Credit Counseling Services
A good Consumer Credit Counseling Service can help you get of debt faster and at a lower overall cost. Debt Management Programs (DMP) offered by Consumer Credit Counseling Services are especially effective if a big part of your debt problems are caused by high-interest credit cards you carry.
Consumer Credit Counseling Services offer a two-pronged approach to paying off your unsecured debts.
- Budget and Financial Review- Every reputable Consumer Credit Counseling Service starts by looking at your budget, analyzing your income, expenses, debts, and assets. Budget review is a good idea any time someone is under financial strain. A credit counselor will give you a professional opinion, which is even better.
- Debt Management Plan (DMP)- If cutting expenses and spending your money wisely will not solve your problem, your Consumer Credit Counseling Service may recommend a DMP. The main benefit of the DMP is that it can lower your interest rates. Because you are currently making only minimum payments, it will take you many years to get out of debt and your accumulated interest charges on your high interest debt will be massive. Consumer Credit Counseling Services will get you out of debt at a much lower cost in 4½ to 5 years.
Whether or not the Credit Counseling Service is a non-profit, the program will come with some fees. The most common fees are a one-time enrollment fee and a monthly maintenance fee.
State law governs the fees. Enrollment fees normally range from $25 to $75 and monthly fees should not exceed $50.
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Why Do People Choose Debt Management Programs
Based on the debts you have and an analysis of the available options, I recommend that you speak with a reputable Consumer Credit Counseling Service, to hear exactly what kind of plan can be put together. Here are the main benefits I see for you, if
- Professional Assistance -Do-it-yourself solutions, while worth exploring, are tough to accomplish. You can try to lower your own interest by speaking with your creditors, but a credit counseling service is worth examining if your major problem is high interest rates on your credit cards. A Consumer Credit Counseling Service will present you a black and white plan, showing you the interest rates they can put in place, and the size of your monthly payment including fees. If you commit to a DMP you will know exactly when you will be debt free, as long as you follow the plan, making the required payment each month.
- Reduced Stress - Working with a quality Consumer Credit Counseling Service will reduce your stress. You will benefit from the free financial and budget review. You will also be free from unpleasant and disruptive collection calls.
- Credit Score- The simple fact that you are enrolled in a Credit Counseling Service's Debt Management Program doesn’t harm your credit score. Closing accounts that you enroll can affect your score negatively. Be careful that no payments are missed in the initial phase, when your DMP is getting set up, as any account that does over 30 days delinquent will harm your score.
- Affordable Payment –Inability to afford the monthly payment is the biggest cause of dropping out from a Consumer Credit Counseling Service. As many as 75% of customers that enroll drop out, mostly due to committing to a payment that they can't make. Don’t let your desire to get out of debt lead you to commit to a solution you can’t see through.
- Eliminate Fees- Debt Management Programs may be able to get creditors to waive late fees.
- Get out Debt Faster- Although a DMP has a defined number of months to run, you can reduce the time to become debt free if you can pay more than your DMP requires. If you are able to reduce costs through reducing spending in other areas or can raise your income, then increase your payment. You will finish the program faster and pay less in interest.
Dealing with debt
Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q2 2023 was $17.06 trillion. Auto loan debt was $1.582 trillion and credit card was $1.031 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Collection and delinquency rates vary by state. For example, in Wisconsin, 16% have student loan debt. Of those holding student loan debt, 6% are in default. Auto/retail loan delinquency rate is 3%.
To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.