Credit Counseling
Credit counseling is an educational service offered to indebted consumers that aims to teach them how to avoid falling back into debt that they cannot repay. In a normal credit counseling process, a negotiation with creditors will be involved to establish a payment plan for the consumer. These payment plans offer reduced fees, payments, and interest rates for the clients allowing them more flexibility in paying off their debts.
When joining a credit counseling program, all of the client's accounts are closed disallowing any future charges on the accounts. Once this is done, a payment plan, or “debt management plan” is brokered with the creditors, sometimes with the consolidation of all debts, and sometimes with each debt individually. The most common amount of debt reduction is around 10%-20%, although in extreme cases in can even be more. What is then arranged is a single monthly payment to be made that is lower than the sum of all debts that the consumer is currently paying.
Also associated with these debt management programs is the reduction or, in some cases, elimination of interest fees. When consumers default on their credit accounts, most of them are paying near 30% in interest on the debts that they owe. Once they are enrolled in a debt management program these rates drop typically between 5%-10% and in extreme cases, are eliminated altogether.
Consumers considering entering into Credit Counseling should also be aware the credit counseling agency and/or creditors will report to the credit bureaus that you are a client. Your credit report will be flagged until your program is complete and some lenders may not extend credit to you until the program is final.
Another benefit of joining a credit counseling program is that it gives the consumer the opportunity to bring their delinquent accounts to a current status. Nothing can be done to repair the damage caused by delinquent payments, however this gives the consumer the opportunity for a fresh start and a chance to start building a positive credit history. When dealing with Financial Choice Network you can rest assured you will be dealing with a reputable agency.
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