Credit Counseling

What credit counseling can do:
Usually, credit counselors can stop late fees and other penalty charges, reduce or stop interest charges,
lower the required monthly payments and re-age accounts to bring them current. Once enrolled,
correspondence from creditors regarding past due accounts are directed to the credit counselors. It puts
an end to upsetting collection calls.

In analyzing an applicant's financial profile, credit counselors determine if there is sufficient income to
sustain an acceptable budget based on a "revised" payment plan. Should a qualified applicant enroll, credit
counselors can set up a conditional budget which accommodates all of the applicant's creditors. Only
unsecured debts, however, are placed in debt management programs. Credit counselors do not contact
secured creditors. However, these expenditures are accounted for in determining an acceptable budget.
This budget includes a "fixed monthly consolidated payment" to cover accounts placed in the debt
management program. Upon enrollment with a credit counseling company, based on this budget and their
experience negotiating with creditors, the credit counselors draft and mail proposals to each creditor
placed in the program. These counseling organizations usually have established relationships with the
different credit companies and banks and can negotiate on your behalf.

Online credit counselors
Despondent and/or embarrassed, many debtors in need of online credit counseling and financial assistance
are reluctant to discuss their financial affairs with an outsider. Consequently, many never take the necessary
steps to amicably resolve their financial hardship. By offering online credit counseling, anyone with access
to an email address may receive a confidential financial analysis, absolutely free of charge and without
obligation. If qualified, applicants receive financial assistance in setting up an affordable budget through a
debt management program. Unless you prefer verbal communication, all discussions and transactions can
be handled via email using online credit counselors.

Online services not only alleviate any concerns or embarrassment of a face-to-face meeting, but also
ensures absolute confidentiality. Some debt counseling agencies require personal office visits and expect
you to make numerous visits to the agency during the typical five year duration until your debt is liquidated.
With online credit counselors, you need never leave the comfort of their home. In addition, online credit
counseling services also provide an opportunity to individuals who are unable to leave their home, to also
have the opportunity to have credit counsleing. Whatever your situation, online credit counseling services
can be fast, friendly, simple and effective.

What is a fixed monthly consolidated payment
The "fixed monthly consolidated payment" is specifically calculated to provide the debtor with an
affordable budget while still allowing them to sustain a reasonably comfortable standard of living. It also
provides the debtor with a consistent and exact dollar amount in which to budget monthly. You need only
draft a single check each month to ultimately liquidate all your accounts placed in the program.

Aside from increasing the payment, the fixed monthly consolidated payment also provides the quickest
means to liquidate your debts. When accounts, small or large, are paid off, credit counselors then
systematically apply the excess amount to other debts remaining in the program. This method not only
accelerates liquidation, it can result in reduced interest charges, benefiting you with additional savings.

Reduction of interest rate
Creditors' policies in regard to interest reduction can vary dramatically. With interest rates typically at 15%
to 21%, interest reduction can save you thousands, and for heavy debtors, tens of thousands of dollars.
Obtaining interest reduction on just one or two accounts in itself may warrant enrollment with a credit
counseling program.

When consumers only pay the minimum payment due, paying off a debt could easily exceed 10 years, and
in some situations, the account may never be paid off. This is especially true when late fees, over-limit
charges and annual fees are assessed. In reality, the actual interest paid by the typical debtor paying
minimum payments is much greater than the amounts listed above. The combination of reduced interest and
a fixed monthly consolidated payment is the real power of a debt management program.

Debt-to-income ratio
One of the quickest ways to get a handle on your current financial picture is to calculate your debt-to-
income ratio. Lenders look at your debt-to-income ratio when they consider if you are creditworthy.

A widely used measure of financial stability, debt-to-income ratio is calculated by dividing your monthly
minimum debt payments by your monthly net income -  a debt-to-income ratio compares debt load to
income.

Finding a Reputable Credit Counseling Agency
If you’re not disciplined enough to create a workable budget and stick to it, work out a repayment plan
with your creditors, or keep track of mounting bills, then you should contact a credit counseling
organization. Credit counseling organizations work with you to help solve your financial problems.

Reputable credit counseling organizations can advise you on managing your money and debts, help you
develop a budget, and offer free educational materials and workshops. Their counselors are certified and
trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss
your entire financial situation with you, and help you develop a personalized plan to solve your money
problems. An initial counseling session typically lasts an hour, often with an offer of follow-up sessions.

A reputable credit counseling agency should send you free information about itself and the services it
provides without requiring you to provide any details about your situation. If a firm doesn’t do that,
consider it a red flag and go elsewhere for help

Here are some questions to ask to help you find the best credit counselor for you.
What services do you offer? Look for an organization that offers a range of services, including
budget counseling, and savings and debt management classes.

Do you offer information? Are educational materials available for free? Avoid organizations that
charge for information.

In addition to helping me solve my immediate problem, will you help me develop a plan for avoiding
problems in the future?

What are your fees? Are there set-up and/or monthly fees? Get a specific price quote in writing.

What if I can’t afford to pay your fees or make contributions? If an organization won’t help you
because you can’t afford to pay, look elsewhere for help.

Will I have a formal written agreement or contract with you? Don’t sign anything without reading it
first. Make sure all verbal promises are in writing.

Are you licensed to offer your services in my state?

What are the qualifications of your counselors? Are they accredited or certified by an outside
organization? If so, by whom? If not, how are they trained? Try to use an organization whose
counselors are trained by a non-affiliated party.

What assurance do I have that information about me (including my address, phone number, and
financial information) will be kept confidential and secure?

How are your employees compensated? Are they paid more if I sign up for certain services, if I pay
a fee, or if I make a contribution to your organization? If the answer is yes, consider it a red flag and
go elsewhere for help.

The Loan Guide provides access to free information about Credit Counseling.