Credit Counseling Is Just The Same As Debt Management

Credit counseling is essentially assisting people with debt concerns to develop fiscal discipline and adhere to a practical budget that can help them to wind down their debt in the most optimal way. This sort of a program is basically aimed at folks that earn enough but simply can’t manage their finances efficiently and land up in debt. In contrast, debt management programs aims to take charge of the client’s money and paying off his creditors till such time the balance is zero, and can be closed down. Only about a third of people getting in touch with credit counseling agencies stand to benefit from such a debt management program.

Monthly Payments Can Be Halved By Credit Counselors

The only thing credit counselors do is to advise people who have run into debt on reorganizing their financial habits so that they are able to meet their debt servicing obligations without too much of a hassle. For a very small proportion of clients, they are able to re-age some of the missed monthly payments; however the customers still need to pay those amounts that are due as on the last statement.

Lower Interest Rates Are Available From Some Companies

Any rate that customers see that is significantly lower than the rest is bound to be part of a teaser campaign meant to attract the attention of those in financial distress. Generally, all quotes in the range of prime rate minus 0.75% to prime rate plus 2% are meant for those with excellent credit scores. Usually most folks who need to consolidate credit card debt can expect rates that are around 4-5% above the prime rate and be ready to shell out another 0.2% or so in fees. The teaser rates are being used by companies to lure the customers in and process their application to such as extent that they feel disinclined to exit even after realizing that they do not qualify for the low rates. Companies also use these low rates of interest to rise to the top of search engine rankings that are so vital in attracting online queries.

You Can Get Lower Monthly Payments with Some Companies

The fact is debt management programs do not involve negotiating the debt amounts with creditors. It is quite likely that any company that gives an indication of something different is actually putting customers into a debt settlement program, in which they will accept the customer’s monthly payments but hold them up till such time the creditors are ready to negotiate and settle for very small sums. Unfortunately the credit rating of customers gets seriously affected as the number of missed payments really piles up in the meantime.

The Cheapest Way Is Debt Settlement

If customers really need to enroll for a debt settlement process, they need to be extremely careful as to how the companies are going to approach it. They need to ask themselves whether they are comfortable with the idea of them making the payments to the company that then withholds the money from the creditors with the intention of bringing them down to their knees. Also, they need to find out if the debt settlement company has a clause that enables them to forfeit all their money in case a payment to the company is missed. In case that is present, customers should definitely walk away. It is also vital to keep in mind that the debt-settlement route will negatively impact the credit rating of customers as the number of missed payments will keep on increasing till the creditors are ready for negotiation.

Author bio: Jennifer Mitchell works for a not-for-profit organization that focuses on advising people with financial concerns. Jennifer has written a number of articles on how to best consolidate credit card debt.