Facts about Credit Counseling

Ever since credit crunch has overpowered the economy, debtors have been feeling an urge to wrestle out of the debt trap. You are in debt or you anticipate a difficult financial situation ahead but you have no one to turn to. Under such circumstances, a credit counselor can be your savior. Earlier there were few credit counseling companies and you had to search for one. These days, a credit counseling company can be found round the corner. It is the easy availability of the credit counseling companies which make it more difficult to settle for the correct one.

Do you need credit counseling?

Falling in debt does not mean that you need a credit counseling session. If you are in debt but have been making payments religiously, you don’t need a credit counselor. However, if you find any one of the following conditions resembling yours, it is time you seek professional advice.

•You are not being able to make minimum payments for your credit cards.

•You have been regularly paying late fees.

•You have tried to negotiate with the creditors but to no avail.

•The creditors or the collection agencies have been constantly harassing you for making payments. They have also called up your place of work.

With the increase in the number of credit counseling companies, the incidence of fraudulent activities has also increased manifold. You may be hearing incidents of “fly-by-night” credit counseling companies who have fled with people’s money. If a particular company is claiming to make you debt free within a very short time span, identify your financial situation and see it for yourself, how feasible the claim is.

Seek counseling from the “right” company

There are a couple of warning signs which you must look out for in case you intend to hire the services of a credit counselor. You may also come across many companies offering free credit counseling.

•Accreditation Check out if the credit counseling company you intend to take help from is affiliated with NFCC or National Foundation for Credit Counseling. It can also be affiliated with Association of Independent Consumer Credit Counseling Agencies.

•Upfront fees Watch out for the upfront fees being charged by the credit counseling company. In majority of the cases, USD$10 is the enrollment fee. If you are being charged more than this, you are in for trouble.

•Giving you unrealistic hopes A good credit counseling company will help you to negotiate at a lower rate of interest and help you to get out of debt. Any company claiming to settle your debts for free may not be able to keep its promise.

•Missing paymentsMany companies take your first payment as their fees instead of paying it to your creditors. This causes you to miss payment for a month thereby affecting your credit score. Prior to hiring their services ask the credit counseling company how much they will charge as their fees.

There is a common belief that creditors refuse to give credit if you have been on a credit counseling program. However, credit rating due to credit counseling depends to a large extent on how your creditors report it to the credit reporting agencies. In fact, credit counseling is looked upon by many creditors as a positive signal of getting out of debt. It implies that a debtor is at least trying to get finances back on track.