A Credit Counseling Program, sometimes referred to as a Debt Management Plan, is a program established by the credit card companies to assist consumers struggling with large credit card balances. Consumers with a large amount of credit card debt, who are able to make their monthly minimum payments, but are not seeing their balances go down each month, may be a good candidate for a credit counseling program.
In a credit counseling program, a financial counselor helps to develop a household budget to determine what the client will be able to pay each month toward reducing their debt. The credit counseling company will then work with the credit card companies to establish a new payment plan under a pre-negotiated interest rate that is much lower than the previous interest rate.Depending on how much credit card debt is enrolled in a credit counseling program, a typical repayment plan can be 4-5 years in length.
During this time, all of the principal plus interest will be required to be paid back. Each month the client will make one monthly payment to the credit counseling agency who will in turn distribute individual payments to each credit card company. Failure to make timely payments in a credit counseling program will cause the repayment agreement to be voided and any interest charges, penalties or late fees that were reduced or eliminated will be retroactively reinstated.
Here are some additional Pros and Cons to consider when evaluating a Credit Counseling Program:
- One monthly credit to the payment company.
- Resolve your debts in 5-7 years.
- Reducing the interest rates on your cards.
- You must pay back 100% of the principal and most of the interest as well.
- Failure to make payments will results in a default and the reinstatement of interest penalties and fees.
- Monthly program fees are in addition to the repayment amounts.
- Your credit card accounts will be closed and you will not be able to use your credit cards.