Credit counseling, in all of it’s forms, have been around for many years, but it’s been within the last 5 years that their popularity has gained momentum. With new federal laws governing credit card accounts (in order to speed up the pay-off process by raising the minimum amount due), it’s sending a green light credit counseling services to get ready, for the masses will be pouring in. Minimum payments are expected to double.
Interest rates are on the rise as well. Many adjustable rate mortgages from the recent housing boom are adjusting upwards quite quickly. The new household payments are increasing without a foreseeable end.
Credit counseling services take this opportunity to wave their magic wand and reduce or eliminate interest on any unsecured debt (credit cards, personal loans, etc. not houses and car payments). They bargain with your creditors and negotiate a monthly payment that’s more affordable. By combining all of your smaller payments onto one bill which you pay directly to them (they disperse the payments each month), it’s much easier to get a grip on your finances, pay each bill on time, and pay them off much faster than if you were doing this alone. Those are the benefits.
If you’re planning on buying or refinancing a home within the projected timeframe in which your bills will be under the guidance of a credit counseling service, you might want to make a few adjustments to your thinking process. Here’s why:
Many mortgage lenders, both from banks and other financial institutions, will look at credit counseling services in much the same way as they view Chapter 13 of bankruptcy. This form of bankruptcy allows a filer to keep all belongings by going on a repayment plan; much like credit counseling. Bankruptcy in any of form is considered a negative mark on your credit report, remaining in tact for up to ten years.
Another possibility for you to be on the lookout for is that your personal creditors involved with the counseling might report you as paying your debt consistently late every month. Even though the creditor must agree to the terms of the credit counseling service at the start of the process, they are still legally allowed to put a black mark on your files, as the original terms of your credit have been altered.
Those are the risks. These are the facts:
Many of these credit counseling services are non-profit. They may ask you to voluntarily donate money each month when you make your payment to them in order to assist with the involved fees. Just because a company is non-profit, doesn’t mean that it’s full of volunteers who want to help you with your debt. It means that all money made is put back into the company. Employees get paid and the managers draw salaries, just like any other company.
Furthermore, just because a company is non-profit, doesn’t mean they are legitimate. Be sure that all of their dealings are legitimate and check them out with the Better Business Bureau before putting your valuable credit in their hands.
