Credit Counseling, also referred to as a Debt Management Plan, is a program that is best suited for consumers with a moderate debt load that may be having difficulty making their full monthly payments or timely monthly payment on their credit card accounts. A Credit Counseling program may be a good solution for anyone who has experienced a short term financial event, and needs relief from high interest rates in order to get back on track paying their credit card bills.
How Credit Counseling Works
In a certified credit counseling program, you will work with a financial counselor to establish a budget and monthly payment plan and then make one single monthly payment to the credit counseling company who in turn will disburse your payment to your credit card companies.
Credit counseling companies work directly with your creditors to adjust your interest rate and establish a new monthly payment plan to repay the full outstanding balance on your credit card accounts over a period of 5-7 years depending on how much you may owe to your creditors. In a credit counseling program, fees are paid to the credit counseling agency by the credit card companies, and consumers typically pay a small monthly program management fee of $50 or less for administering the program.
Pros and Cons of a Credit Counseling Program
- One monthly payment to the credit counseling company.
- Resolve your debts in 5-7 years.
- Reducing the interest rates on your cards.
- Your credit card accounts will be closed and you will not be able to make future charges on enrolled accounts.
- You will pay back 100% of your outstanding balances.
- A Credit Counseling Program requires on-time payments each month.
- Failure to make on-time payments may result in interest rates being raised again.
- A Credit Counseling Program typically takes longer to complete than a debt resolution program.
Credit Counseling can provide relief for consumers with moderate debt loads, but requires you to pay back 100% of the amount owed.