Credit Counseling and Debt Management Plans

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Self help is sometimes the best help you can get with credit counseling. When you are trying hard but are not able to crack the downward spiral of debt, it is time to prepare yourself before you seek help from a credit counselor. Keep a budget in place and follow the budget. You will need to list your incomes and expenses and whatever you save at the end of the month needs to be used to pay off your debts. You will find budgeting information and budgeting worksheets over the internet or at a library. Also contact your creditors and explain them why you are not able to pay on time. In many cases, they will understand and will work with you. As is a general rule, communication is the key in credit counseling.



Repairing Bad Credit to Purchase or Refinance A Home
Your credit report and credit score makes huge differences in your life, and in your finances. If you have a great credit score, your home, car, insurance, and more will cost you thousands less because you are deemed "credit worthy." If you have poor credit, you can be denied a home loan, refinance, and even auto insurance. Yet, most people have absolutely no idea what is necessary to improve thei... Read credit counseling article



Credit Counseling and Debt Management Plans
Having trouble paying your bills? Getting dunning notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?

You're not alone. Many people face a financial crisis some time in their lives. Whether the crisis is caused by personal or family illness, the loss of a job, or overspending, it can seem overwhelming. But often, it can be overcome. Your financial situation doesn't have to go from bad to worse.

If you or someone you know is in financial hot water, consider these options: realistic budgeting, credit counseling from a reputable organization, debt consolidation, or bankruptcy. Debt negotiation is yet another option. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.

Self-Help

Developing a Budget: The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your "fixed" expenses - those that are the same each month - like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary - like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.

Your public library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.

Contacting Your Creditors: Contact your creditors immediately if you're having trouble making ends meet. Tell them why it's difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don't wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.

Dealing with Debt Collectors: The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you're at work if the collector knows that your employer doesn't approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact.

Managing Your Auto and Home Loans: Your debts can be unsecured or secured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care, signature loans, and debts for other types of services.

Most automobile financing agreements allow a creditor to repossess your car any time you're in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can't do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You'll avoid the added costs of repossession and a negative entry on your credit report.

If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you're acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.

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Debt reduction and credit counseling

More and more consumers today find themselves in the uncomfortable situation of only being able to afford the minimum Payments on their credit cards. Or, even worse, not being able to afford even the minimum payments. In today's world, it is often easy to get in over your head and find yourself spending more than you make. It seems that everything is going up but wages, and it is all too easy to fall behind.

Many of these desperate consumers find themselves contemplating a bankruptcy filing, but bankruptcy can carry a legacy you will have to live with for years. A bankruptcy filing will stay on your record for a minimum of seven years, and you may find it difficult or impossible to obtain necessary credit in the interim.

Fortunately, there are alternatives to filing bankruptcy, even for consumers who owe thousands or even tens of thousands of dollars to various banks, credit cards and other creditors. Many people ask whether it is best to go with a debt reduction program or enroll in a credit counseling program. While there are some similarities between these two types of programs, there are some important differences to consider as well. Let us consider the five most important differences between debt reduction and credit counseling.

1. Did you know that most credit counseling programs will require that you close all of your credit accounts? The few exceptions to this requirement include accounts that are required for business needs, accounts with very small balances and accounts on which there are cosigners who are not applying for credit counseling services. Debt reduction services, on the other hand, do not require that all credit accounts be closed. This can make it much easier to keep a credit card for emergency and convenience purposes.

2. Credit counseling services typically take longer to complete than debt reduction services. The average length of time to liquidate debt through a credit counseling service is 5 years. Unlike credit counseling, debt reduction programs can often allow consumers to retire their debts in less than a year.

3. Cost savings in the form of reduced payments is another important advantage of debt reduction programs. While credit counseling programs typically require that the entire amount of the debt be repaid, debt reduction programs can be negotiated to allow the consumer to repay only a portion of what is owed. Most creditors are willing to work with consumers enrolled in debt reduction programs and that includes accepting a lower repayment amount. Settlement amounts can range anywhere from 20% to 60% of the amount owed, with the industry average being around 50%.

4. Your credit score is also affected in different ways by credit counseling programs versus debt reduction programs. Generally, credit-reporting agencies will re-age the accounts of consumers enrolled in credit counseling services after three payments have been made. With a debt reduction settlement, the status of the account does not change. If the account is current, it will remain current. If it is past due, it will remain so. It is also good to remember that with a debt reduction agreement the creditor will report that the account has been "settled in full" or similar wording, at the conclusion of the debt reduction program.

5. The final difference between debt reduction programs and credit counseling is the bargaining power enjoyed by the consumer. Credit counseling programs rely on the submission of a debt repayment proposal which the creditors are free to accept or reject as they see fit. With a debt reduction program, however, all creditors are contacted immediately to inform them of the hardship situation and the desire to resolve it through a negotiated debt reduction agreement.




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Credit Counseling and Debt Management Plans
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