Credit and Debt Counseling
Are you having trouble balancing your budget at the end of the month?
Do you wonder how you can manage to keep paying your credit card bills when income is tight?
One call to an FCAA member agency will have you on the phone with a certified credit counselor who will review your budget with you and help you devise a plan to get back on the road to financial wellbeing.
Consumers often call a credit counseling agency to seek help repaying their debts. There are many options in the debt relief industry. Advertising and commercials for “get out of debt now” can sometimes be misleading, leaving consumers at a loss for the help they are really looking for.
- Debt help
- Debt relief
- Debt negotiation
- Debt consolidation
- Debt management
- Debt settlement
- The list goes on and on…
Let’s take a look at options that consumers with overwhelming debt loads may want to consider:
Debt Management Plans (DMP)
Sometimes referred to as Debt Consolidation, a DMP can only be offered by a licensed credit counseling agency. A DMP is a plan designed to repay all of one’s credit card debt in full. One monthly payment is made to the credit counseling agency, who then disburses the payments to the creditors. Concessions are often given to consumers enrolled in DMPs and can include lowered interest rates on outstanding debt, elimination or reduction of late fees and bringing past due accounts current. DMPs are tailor made for an individual’s unique financial situation and are designed to have one’s debt paid off within five years. Because monthly payments continue to be made to one’s creditors, the accounts will not go into collections. Fees can include a onetime set up fee and recurring monthly fees. A DMP can have a negative effect on one’s credit report, though it is hard to know how much it will affect one’s credit score.
Personal Consolidation Loans
Often looked at as an option for paying off debt in full, a personal consolidation loan can be a good solution if the interest rate is lower on the new loan than what is currently being charged on the outstanding debt. Be mindful to make loan payments in a timely manner and try to make a payment greater than the minimum due.
Debt Settlement (or Debt Negotiation)
Debt Settlement is an approach to paying off debt whereby the consumer offers his/her creditors a percentage of the debt outstanding to satisfy the full amount owed. Consumers can do this on their own or they can enlist the help of a debt settlement company. Debt settlement companies charge fees for their service; either a percentage of the debt enrolled or a percentage of the debt forgiven. In either instance, once monthly payments stop being made to creditors (prior to reaching a settlement), the consumer risks having his/her accounts go into collections. Until a settlement is reached, interest accrues and late fees continue to be charged. It is also important to note there could be a potential tax liability on the amount of debt forgiven. Debt settlement will show as a negative on one’s credit report, though it is hard to determine how much of an effect it will have on one’s credit score.
Bankruptcy is an option for those with burdensome debt loads and not enough income to pay off the debt. Please speak with an attorney to discuss if this is the best option for you.
What is it that companies operating in the debt relief industry don’t do and can’t do?
- They don’t offer grant money to help consumers pay off their debts.
- They can’t remove negative items from one’s credit report. Only time can do that.
- They can’t guarantee all creditors will accept a proposal, whether it’s a debt settlement proposal or a proposal for a debt management plan.
- They can’t charge up front fees.
- They can’t guarantee you won’t have a tax liability if debts are settled with a creditor for less than is owed.
Please reach out to an FCAA member agency who can review your budget with you and help you to understand the options which option to repaying your debts would be most beneficial for your particular financial situation.