Top Three Questions and Answers About Debt Counseling
Each year, many consumers decide to turn to debt counseling in order to try and find their way out of a deep financial hole. While this is a good choice for some people, others have many questions about the process. Below are the top three questions and answers about debt counseling.
Will It Hurt My Credit Score?
The short answer to this question is, yes, using debt counseling will have a negative impact of your credit score. But really, the answer is much more complicated than that. If you are consistently late on your payments and all of your credit cards are maxed out, then your score is already going to be fairly low.
If you continue to make payments late the score will continue to drop. If the accounts are charged off or if you take further action, such as filing for bankruptcy, those factors will hurt your score even more.
That means that in some cases, the choice to use a debt counseling service will be better in the long run for your credit score.
Also, many lenders will take into consideration that you went to debt counseling as an option for dealing with out of control debts rather than choosing to file for bankruptcy. Sometimes, decisions about whether to loan to consumers will be made on a case by case basis, rather than just on a credit score.
It is better to have gone to debt counseling and paid off your debts than it is to have had those debts charged off or have a bankruptcy or a string of court judgments on your record.
Do I Still Have to Pay All of the Debts That I Owe?
A common misconception about debt counseling services is that they can make your debts disappear. They cannot. The point of a debt counselor is to help consumers work out a plan through which they are able to pay what they owe over a set period of time with the end goal being to become debt free.
While debt counselors cannot make debt go away, they can help you get your interest rates lowered and put a stop to fees, such as late and over the limit fees.
These savings can be significant and can be of great assistance in getting those debts paid off rather than having all of the payments go to cover fees and interest. Depending on how much you, this can add up to thousands of dollars in savings, so while you will still have to pay what you owe, the total amount will likely be considerably less.
How Do I Know that Debt Counseling is Right for Me?
This is a question that everyone should ask before rushing into a decision to use debt counseling services. The easiest way to answer the question is by deciding if there is any way that you can handle your debt problem on your own. For example, if you make a few lifestyle changes, such as not eating out, turning off cable or working a few more hours, would that have enough of an impact that you would be able to pay your bills?
Also, many credit card companies are willing to work with consumers in order to help them be able to make their payments. In fact, this is true more in that last few years than it ever was in the past. Often, if someone can prove a financial hardship, the credit card companies will be willing to temporarily reduce the interest rate or lower the monthly payment. Also, it is very common for the companies to waive late and over the limit fees as a way to help their customers catch up.
When trying to decide if debt counseling is the right decision, you need to look at the impact the decision will have both in the short and the long term. For some, it is better to try and pay off debts on their own while other could benefit greatly from the services of a debt counseling agency.
There are surely other questions that one may have about debt counseling services. The best way to get answers is to ask each agency directly. Be sure to get all promises and features of the agency in writing so that you will be equipped to make a well informed decision about what is best for you.
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