With tough economic times in this country, and for that matter, worldwide, many have fallen into debt, and are considering consumer credit counseling. For many, it's a last ditch effort to be used as an alternative to bankruptcy. For others, it's a way to get monthly expenses under control, so there's a little breathing room. If you're wondering if consumer credit counseling is right for you, there are some things to consider.
What is consumer credit counseling?
There are some things that make consumer credit counseling a great alternative to bankruptcy. This is really a repayment plan, so your lenders and creditors will get paid. The company will work with your creditors to come up with a repayment plan. Generally speaking, you pay the consumer credit counseling company, and they pay your creditors. This will typically allow you to make one monthly payment, at a reduced rate. You pay less because they are typically able to negotiate a reduction in interest rates, and in some cases, late fees and penalties. This really is a great way to avoid bankruptcy, as you can hold your head high knowing that your creditors have been paid through consumer credit counseling. You will meet with a real person to discuss your situation, and answer any questions you may have. It may be wise to write down the questions you come up with ahead of time, so you don't forget to ask when there. You can try to negotiate debt reductions on your own, but it is stressful.
When you look for consumer credit counseling companies, you will generally want to choose a nonprofit company. You will still pay administrative and other fees, but they will be less. There are some real horror stories out there, so you really want to investigate the company thoroughly. Some consumer credit counseling companies have been known to scam their clients out of money. Check with the BBB before you sign up with any consumer credit counseling company. Still, you should know that there are plenty of legit companies out there, that will really help you out and work with you.
How much less will I pay each month?
This will vary a lot, but you should know that you will save money each month. You won't really know how much you will save each month with consumer credit counseling until you sit down and talk to one of the companies. Generally speaking, you will save money, it's just the way to whole thing is really designed to go. There is no way of knowing exactly how much you will save with a consumer credit counseling company until you meet with them.
Impact on your score:
Consumer credit counseling will have a negative impact on your FICO score, making it even harder to get loans and borrow money. For many, this is not an issue, as the months or longer of falling behind has already dipped the score way down. Still, it is something to keep in mind, as consumer credit counseling will have an impact today and in the near future on your score.
Fortunately, many can actually use consumer credit counseling as a way to boost their score over time. This is an alternative to bankruptcy, and it's starting to be viewed this way. This really means that the impact is less than bankruptcy, which only makes sense, since this is really a repayment plan. Because there is some long term benefit to consumer credit counseling when it comes to FICO scores, it really is a positive alternative to bankruptcy. It's something to think about before you decide if bankruptcy is right for you.
About the contracts:
You will want to think long and hard about the contract you will sign when you use any consumer credit counseling company. What is the length of the contract? How much interest will I pay? What are the fees associated? What happens if I miss a payment? Of all the questions, the last one, what happens if I miss a payment, is probably the most important. In the past, many consumer credit counseling companies had incredibly stiff penalties for being just a day late on your payment. In fact, some were known to keep the entire payment as a late fee. Fortunately, things have changed, at least for the most part. This is still important, even with the changing laws, as you must be careful to make sure you aren't falling prey to a scam. Consumer credit counseling is a wonderful way to avoid bankruptcy, but you really should be sure to read all the fine print in the contract.
What does the consumer credit counseling company need from me?
Generally speaking, you will want to round up the bills of all your creditors. It would also be wise to round up all other bills, so you can make a payment plan to fit your budget. Consumer credit counseling companies are typically known to work with you on a payment plan to fit your budget. As you can expect, the lower payments you make, the longer the length of repayment. This only makes sense, since this is basically the same as a loan.
Alternatives to consumer credit counseling:
Just as this is one of the alternatives to bankruptcy, there are some alternatives to consumer credit counseling that you should consider.
1. Bankruptcy: Yes, it goes both ways. If you cannot afford to make the payments when using one of the companies, bankruptcy may actually be your best alternative.
2. Home equity loans: If you are able to get this type of loan, it can help you pull out of debt. You can basically use it the same way as consumer credit counseling. You will generally pay less interest, and you can typically stretch the payments over a longer period of time.
3. High risk personal loans: Not really a favorite of mine, but they can be used. This way, you can make one monthly payment, and save money, at least in some cases. High risk loans are still a scary idea if you are looking at consumer credit counseling.
4. Prioritization. There is a difference between secured and unsecured debt. If you own money on an unsecured account, you may be able to delay payments to get your secured accounts caught up. This is risky business.
Consumer credit counseling has come a long way over the past few years. It really is worth looking into as an alternative to bankruptcy. Take control of your finances today.