In an ideal world we would all be able to handle our expenses with no help from anyone. We would only have the amount of debt that we could easily pay back. Unfortunately, we do not live in an ideal world and when the unexpected happens sometimes we end up in over our heads financially.
When that happens one avenue of relief is to consolidate your debt. There are many ways that this can be done such as balance transfers from many high interest credit cards to one low rate card or a debt consolidation loan or second mortgage. Another option to seek help from a debt consolidation agency.
What can Credit Counselors Do?
A credit counselor will review the debtor’s situation and propose a payment plot that is reasonable for debtor and acceptable for the creditor. The debtor pays a monthly payment to the agency and the creditors receive their agreed upon amounts from the agency.
Place the Experts to Work for You
Debt consolidation agencies can sometimes get your interest rates lowered, stop late fees and penalties from mounting and come up with a repayment plot that will work with your budget.
Not Always a Win Win Situation
One problem with credit counseling is that it sometimes does not result in a monthly payment that the client can afford. Creditors are only willing to negotiate so far, and if you owe a lot of money you may not be able to afford the best deal they will give you. If that is the case, you’ll have to either find another means of paying your debt or consider bankruptcy.
Also while you benefit from the debt consolidation services you also pay for them. If you are already in over your head this extra expense tacked on top of all your other debt may be more than you can handle.
There is also the negative effects that credit counseling has on your credit scores. This is reported to the credit reporting agencies and it shows on your report until you have paid off the debt and then for some time after that. The system is very similar to filing Chapter 13 bankruptcy where an agreed upon payment plot is established. Many creditors view it as the same and are hesitant to extend credit to someone who has been through credit counseling.