Financial Tips | Debt Management

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11/28/07

Do Credit Counseling Services Really Help?

In order to answer this question effectively, one would have had to actually participate in a credit counseling service. Fortunately for you, I have participated in such a service. There was a time in my life (mostly during college) when I would irresponsibly use my credit cards. I was deeply in debt and was having trouble making monthly payments. I decided that I needed to solve the problem by hiring the services of a credit counseling company.

Basically, these companies contact your creditors and get your interest rate and monthly payment lowered. Your credit accounts are closed (therefore, you can no longer use them and your credit score is negatively impacted, although not by much) and all of your debt is pseudo consolidated. These companies claim that your debt is consolidated into one, low monthly payment. Although it is true that you do only make one monthly payment, your debt is not consolidated. Each one of your credit card companies is still owed its respective debt amount. You only make one payment because you pay your credit counseling service, which in turn pays each one of your individual credit card companies its individual share. Additionally, the credit counseling company takes a fee for this service.

For the most part, these companies help you get organized and do help you pay down your debt. In my experience, they do not completely cover all of the ramifications of participating in such a service, however, if you do your homework and ask all the questions you may have, you will discover the whole story. If you do not like the answer you are given, ask the question again or ask for clarification.

The only problem I had with my credit counseling company is that they sometimes were not timely with my payments to my creditors. You have to make sure that your payments are being made to the appropriate creditors for the appropriate amounts. Additionally, you have to make sure that the credit card companies are recording the payments and are not adjusting your interest rate. It can be a tedious process, but if you put in the effort and weigh the benefits against the disadvantages, you should conclude that a credit counseling service is one viable solution if you are struggling with credit card debt.

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