Credit Counseling Can Help You Create a Budget, But It Doesn’t Impact Your Principal Balances
Credit counseling won’t reduce the amount of debt you owe. They’ll work with you to create a strategy to manage your credit and pay off your debt. Sometimes it is paired with a debt management plan (or DMP), which may incur an additional fee, even if the it is done through a non-profit agency. There are many options for credit counseling agencies. It’s best to do your research and find one that is in good standing with the Better Business Bureau. You will also want to make sure that they are accredited by the National Foundation of Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).
If your credit counselor reviews your financial information and determines that a DMP is the best route for you, they will work with your creditors to negotiate payment terms that work within your budget, including lower monthly payments or lower interest rates. If your creditors agree to the DMP, you would send your monthly payment to your counseling agency and they would distribute payments to your creditors. The benefit is that your creditors would no longer be contacting you. The downside is that it typically takes between three to five years to complete the process. And, your credit counseling agency can require you to give up your credit cards until you’ve completed your DMP.
Note: Credit counseling firms are compensated by the credit card companies themselves.
They are paid a fee for your on-time payments. CBS News reports, “The biggest source of incomes for debt counseling services come from the credit card companies themselves. Creditors kick back a percentage of each monthly payment to the debt counselor. The credit counseling company wants to place you in DMP, so it can earn money from creditors.”
When you become part of our debt reduction program, your monthly deposits will be lower than monthly payments you were making.