Consumer Credit Counseling

September 24, 2011 – 11:11 pm

Read several personal finance blogs or media publications and you are likely to stumble across the words “consumer credit counseling” several times. As debt management solutions go, credit counseling is perhaps the most widely recommended. It is also one of the easiest ways to manage debt because a credit check is not required and undergoing counseling does not damage the credit score. Individuals in debt should read on to learn whether credit counseling is right for them.

A credit counseling program features a reduced interest rate and lower debt payments to various creditors. The credit counseling agency deals directly with creditors and the debtor to create a debt management plan. The goal of this plan is a zero balance for all debts in three to five years. Under this program, the debtor makes a single monthly payment to the credit counseling agency. The amount paid represents the minimum monthly payments required by all creditors plus an administrative fee for the counseling agency.

Once the credit counselor receives the monthly payment from the debtor, the money is divided and the proper amount is sent to each creditor. An individual remains on the management plan until all debts have been repaid, a payment is missed, or the counseling agency ceases to submit payments to creditors. In some cases, the debtor or credit counseling agency makes a decision to cancel the program prematurely for various reasons.

When people cancel a program or it is cancelled for them before all debts are repaid, they need to begin paying creditors on their own. The previous monthly payment amount and interest rate will be reinstated, increasing the regular payment. This puts the person back in the situation that led him or her to find an alternative solution, so it stands to reason that this is not a preferred situation.

A decreased interest rate and monthly payment are the most beneficial aspects of dealing with a credit counseling firm. In some cases, individuals in debt are able to directly negotiate hardship arrangements with their creditors. However, most creditors require borrowers to be behind on payments by one or two months before a hardship program becomes an option. Credit counseling firms do not impose this requirement. In some cases, they require that payments be current.

Being on a debt management program requires limited spending. Credit cards may not be used and the credit limits freeze until the program is completed. Credit counseling does not damage the credit score but the report will contain a note that the individual is in credit counseling. If a bank manually reviews the report when making a lending decision, it may decide to decline the application due to credit counseling.

Some lenders view credit counseling in a positive light, believing that it gets the individual on the proper track financially. Whatever the perspective, the note stays on the file for only seven years. People interested in using a credit counseling firm should visit the Web site of the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or the National Foundation for Credit Counseling (NFCC).

By Staff Writers | Posted in Credit Counseling, Debt Consolidation, Personal Finance | Tagged , , | Comments (0)

Legitimate Credit Counseling Companies

August 13, 2011 – 7:21 am

The debt management sector is not known for being the most ethical. There are plenty of disreputable companies that have no problem stealing money from individuals in debt, providing no assistance with debt repayment. Some of these scammers even steal the identities of the people they are claiming to help. Credit counseling firms are not known to be much better. Individuals who choose to manage their debt using a credit counseling firm should find a reputable company.

Firms with the best reputations are affiliated with either the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or the National Foundation for Credit Counseling (NFCC). Each organization requires that member credit counseling firms adhere to certain standards. This includes mandating that counselors have a license to operate within their respective states, have specific financial certifications, and are accredited by a designated accreditation board.

The Better Business Bureau (BBB) may be a familiar name to some consumers. This agency reports on the reputation and reliability of businesses throughout the country. Consumers can submit claims regarding a poor experience with a company. To improve its image, the company is provided an opportunity to respond to and resolve these complaints. A visit to the BBB Web site will reveal whether the credit counseling firm has many unresolved consumer complaints. Read these carefully and if most pertain to consumers stating they did not receive services they paid for, do not select the firm.

Some less reputable counseling firms encourage consumers to enroll in a debt management program. The fact that they offer no additional services makes them less attractive than competing firms featuring a menu of services. A reputable firm helps consumers establish and improve their budgets and provides financial counseling. It sometimes offers classes regarding debt and money management and counseling sessions are included in the regular service offerings, carrying no additional charge.

Even after debtors have begun making payments on their debt management plan, they should not ignore their debts. It is a good idea to ensure the credit counseling firm is making payments on these debts. Do this by reviewing each credit card statement for the cards included in the plan. In addition, ensure that the interest rate and minimum payment are lower for the debt management plan than on the card statements. This is the main reason the counseling agency is receiving its fee.

Friends and family members can also provide valuable input regarding debt counseling firms. They may have used one in the past or they might know someone who did. By getting a synopsis of the customer experience with the agency, a debtor can determine whether the firm should be added to the consideration list.

Selecting a reputable credit counseling firm can make the debt repayment experience much more pleasant. The consumer will be equipped with a debt management plan, an affordable budget, and have access to skilled counselors who answer questions and provide assistance. As the debt balance decreases, debtors will begin to feel more confident that the financial future will be much brighter.

By Staff Writers | Posted in Credit Counseling, Debt Consolidation, Debt Settlement, Personal Finance | Tagged , , | Comments (0)

A Debt Management Plan Is A Critical Component Of Consumer Credit Counseling

August 13, 2011 – 7:21 am

People who participate in credit counseling programs are assigned a specific counselor. This individual works with creditors to create a debt management plan that forms the foundation of the credit counseling process. In a nutshell, it includes a repayment plan that has been negotiated with each creditor. Each plan is different because it is based on the debt amount, creditors, and monthly budget.

In many cases, credit counseling firms have established creditor agreements that enable them to know in advance what the new interest rate and minimum payment will be. Repaying debts via a management plan takes about three to five years. By sending more than the minimum payment each month, debtors can hasten debt repayment. However, they should first be aware of how the extra money will be handled. Some counseling firms send the entire amount to one creditor, while others divide the payment and send a portion to each creditor.

Creditors are not obligated to accept a debt management plan. Some reject it because the debtor has a past due account or cannot afford the proposed minimum payment. Others do not enter agreements with credit counseling firms. Even when the plan is rejected, a debtor can still have the counseling agency manage payments so only one debt payment is required from the debtor. However, this involves paying a fee so consumers usually opt to perform their own payment management.

Due to the single monthly payment feature, a debt management plan is often mistakenly considered debt consolidation. Unlike consolidation, the management plan is not a loan. Any payment made through the plan goes directly to the creditors representing the original debts. If a plan payment is not made on time, a creditor may choose to no longer accept the plan.

If plan cancellation occurs, the debtor must begin making the original payment amount to each creditor and the interest rate will revert to its previous level. Once payments begin under a debt management plan, the debtor should ensure that the credit counseling firm is making payments to all creditors. A call to each creditor to confirm payment will provide the answer. Credit card billing statements should also reflect these payments. In addition, reduction in the interest rate and minimum monthly payment to correspond with the debt management plan should be confirmed with each creditor.

The credit counseling agency is paid a fee by the debtor, making it important for consumers to ensure they get their money’s worth. Verifying that creditors work with these firms is an important step before agreeing to work with a counseling agency. This prevents frustration and wasted money on the part of the debtor.

By making each payment in the debt management plan on time, all debts should be repaid within five years. Some people find this plan to be a convenient way to get themselves out of debt. Making just one payment to creditors every month is an organized way to handle debt. As long as the debtor, counseling firm, and creditors each live up to commitments, the process should go smoothly.

By Staff Writers | Posted in Credit Counseling, Debt Consolidation, Debt Settlement, Personal Finance | Tagged , , | Comments (0)

The Best Debts To Include In Credit Counseling

August 13, 2011 – 7:20 am

Credit counseling is not always the solution to being in debt. Consumers who cannot afford the monthly payments will not find this approach helpful. Those who have other issues, such as substance abuse or gambling problems, that led to debt should treat the contributing factors with appropriate methods. In addition, only certain types of debt can be addressed through credit counseling.

Counseling works best when applied to unsecured consumer debts, those that are not tied to any asset. Medical expenses, payday loans, and credit card balances are a few examples. Many experts consider credit card debt to be most compatible with credit counseling. Agencies and credit card issuers have existing relationships that enable credit counselors to negotiate a lower interest rate and payment. Though it may be more difficult to include additional unsecured debts within the debt management program, it is possible.

Credit counseling agencies do not accept certain types of debt because they know that the creditor or lender will not participate in a debt management plan. Included in this list are business and secured debts such as business loans, auto loans, mortgages, student loans, and debt from business credit cards. Some agencies include these in the debt management plan even though a lower interest rate or monthly payment is not offered. They simply collect money from the debtor and submit it to the creditor on his or her behalf, imposing a fee in exchange.

If a debt is not accepted by a credit counseling agency, the debtor will need to find another way to handle it. Credit counseling can be used for approved unsecured debts and the other debts can be paid off in a regular manner. A debt consolidation loan consolidates those remaining and ineligible debts into one place. When the debtor is still driving the car and living in the home, debt settlement might not be possible for the relevant secured debts. Once a person goes through repossession or foreclosure, debts that subsequently accumulate may be eligible for settlement.

If there is no other way to handle debt, bankruptcy may need to be filed. Chapter 13 bankruptcy enables the debtor to retain possession of the car and house and repay the arrears during the period of bankruptcy repayment. Though bankruptcy is not an ideal situation, it provides individuals with a fresh start.

Before agreeing to work with a credit counselor, individuals should find out which debts will be involved. If the agency will manage most of the debts, the situation may be worthwhile. If not, it may be best to consider a debt consolidation loan, debt settlement, or bankruptcy. Regardless, there may be some debts that consumers must manage themselves.

Once a relationship is established with a credit counseling agency, customers should ensure that the firm is living up to its end of the bargain. This means making monthly payments to creditors on the behalf of the debtor. These debts should be included in the debt management plan rather than those for which the agency is simply serving as a pass-through entity.

By Staff Writers | Posted in Credit Counseling, Debt Consolidation, Personal Finance | Tagged , , | Comments (0)

Making Minimum Payments On Debt Is A Big Mistake

July 29, 2011 – 9:05 am

There are so many rules to follow when handling debt, it is difficult to remember them all. However, if you must remember one, it should be that making minimum debt payments is not smart. In the past, many consumers thought they were doing a good thing by making minimum credit card payments each month. What they failed to realize was the resulting cost of their actions. These days, online calculators quickly reveal that making minimum debt payments winds up costing an arm and a leg.

Credit card laws recently changed to require that card issuers place a warning on the billing statement regarding the minimum payment. A warning about a minimum payment? How can making a payment require a warning? After reading the warning, it becomes clear why it is there. The message explains how long it will take to repay the outstanding balance by making only the minimum required payments.

Consumers soon realize that it could take years for them to pay off their credit card bills. Perhaps the most revealing information in the warning is how much will end up being repaid in total when this payment plan is used. Based on the high interest rates charged by many card issuers, the amount can be astounding.

Let’s take an example of a $5,000 account balance on a credit card that has a 14 percent interest rate. By making only the minimum payment, it will take over 11 years to attain a zero balance. During that period, the cardholder will pay an amazing $2,880 in interest. Yes, more than half of the account balance must be added on to represent the interest payment. Increasing the monthly payment to just $170 enables the cardholder to pay off the balance in under three years and reduce the amount of interest paid by over $1,700.

This shows how paying more than the required minimum makes sense, especially for someone who is trying to get out of debt. However, sometimes it is just as smart to make only the minimum payment. Someone who is barely able to cover expenses and is struggling financially should prioritize. It is better to continue to eat and have electricity than to pay off the credit card balance. Minimum payments should continue until the person is back on solid financial ground.

Participants in a debt snowball plan are usually required to make a large lump sum payment on one debt while making minimum payments on others. In this case, making the minimum payment is acceptable because the debt will soon be the item of focus to be repaid. It is a rewarding feeling to watch the list of accounts with balances grow shorter until all balances reach zero.

The final situation in which it is advisable to make only minimum payments is when a penalty is imposed for paying more. Certain mortgages feature a penalty clause that fines the mortgage holder for repaying the balance too quickly. In the case of a credit card account, this rarely occurs, but cardholders should check to make sure.

By Staff Writers | Posted in Credit Counseling, Debt Consolidation, Debt Settlement, Personal Finance | Tagged , , | Comments (0)

How To Begin Managing Debt

July 29, 2011 – 9:05 am

Even those of us with just a little debt should know how to manage it. Paying off debt should be a goal but it is also important to keep debt and payments within reasonable ranges so finances flow smoothly. Getting started is not difficult- it requires figuring out how much and to whom the money is owed. Once this inventory is taken, the debt picture becomes clearer and we have a comprehensive view of where our finances stand.

When we list our debt, we should also record our monthly payments. If a figure other than the minimum requested payment is being made, both the minimum and actual payment should be captured. This will reveal whether minimum payments are being achieved. For those who have trouble making payments, a long-term debt solution is necessary. Otherwise, continued missed payments could lead to accounts in collections and eventually, lawsuits, wage garnishments, and bank account levies.

Credit counseling, debt settlement or consolidation, and bankruptcy are a few common debt management solutions. Each one has positive and negative aspects so a basic understanding of each is recommended before making a decision. One usually stands out as best for a particular financial situation and selecting the wrong one can lead to more problems than solutions. This is one of those cases where taking time to research each option can save time and headaches.

Managing debt does not mean only assessing debt- it involves looking at the comprehensive financial situation. Ensuring that each dollar earned is spent wisely can achieve debt management without the use of a formal program. Even when a program is used, judicious spending can make it easier to live within a budget. When we keep spending in check, we know that an unexpected expense will not necessarily put our bank accounts into the negative.

A budget is an essential foundation of responsible living. It helps us plan our expenses based on our earnings and allows us to correct overspending that causes us to fail to meet debt obligations. Through budgeting, we plan expenses around our income. If we do not earn enough to cover our expenses, this will be revealed and can be corrected through our budget. Some people choose to increase their income by taking on additional jobs, while others find ways to reduce expenses.

When they create a budget for the first time, some are amazed at where their money goes. They often quickly identify areas where they can reduce spending, such as cell phone or cable bills. Some weigh the use of land line versus mobile phone and decide that only one is necessary. Others see that they can save money by preparing meals rather than eating at restaurants.

Not everyone will find it so easy to free up cash to repay debts. Those who have a harder time should explore a formal debt management program. Many people find themselves using one of these and there is no shame in trying to address debt this way. This smart move can keep the situation from worsening or repeating itself.

By Staff Writers | Posted in Credit Counseling, Debt Consolidation | Tagged | Comments (0)

Credit Cards Can Ruin Personal Finances

July 29, 2011 – 9:05 am

Credit cards are a double-edged sword. They help consumers make big-ticket purchases that are otherwise unaffordable. However, they can also quickly destroy the life of any consumer. The problem arises when the credit card spending limit is reached and the monthly payment prevents other important bills from being paid. Unless their use is monitored closely, credit cards can hurt consumers.

Some experts say that unless having a credit card is necessary for things like work or an emergency purchase, it should be done without. Individuals who have come to live off their credit cards often find themselves filing for bankruptcy and watching their homes slip into foreclosure. Unwise credit card spending causes people to lose assets they worked hard to purchase. Any of us can fall victim to the glamour of a credit card, even if we are otherwise diligent spenders.

When the credit card has a balance, the account holder must make a minimum payment each month. Credit card interest rates are high so this can be an expensive way to make a purchase. Things get even worse when the cardholder falls behind on the minimum payments. Fees and compounded interest enable the card issuer to rake in more profits while the individual may never be able to catch up on payments.

Prior to completing an application for a credit card, consumers should ask themselves some difficult questions. Do they really need the credit card or can they use cash instead? If the credit card is necessary, what monthly payment can be afforded? Looking for cards with low interest rates and cash back deals can help consumers save money if they must open a credit card account. Identifying an affordable payment level and staying underneath it enables the cardholder to avoid the slippery slope leading to debt.

When the refrigerator stops working and replacement is necessary, there may be no other choice than to use a credit card. In this case, shop around for store cards that feature a no-interest period and pay off the balance within that time. Some stores offer a no-payment period as well but these deals are becoming harder to find.

Proper use of credit cards means making the at least the minimum payment on time each month. Whenever possible, balances should be repaid in full immediately. If this seems too much to handle, cancel the credit card accounts and live within your means. It is better to sacrifice luxuries than to fall into debt.

By Staff Writers | Posted in Credit Counseling, Debt Consolidation | Tagged , , | Comments (0)

Best Debt Management Programs

July 25, 2011 – 11:50 pm

If you are in debt, you are not alone because consumers all over the globe find themselves in this situation at one point. Some people owe just a small amount and can quickly pay their balances. Others find themselves overwhelmed with debt from various sources. Debt is a hindrance no matter how you slice it, which makes it important to prioritize finances and take steps to get out of the situation. Some approaches are more effective than others- read on to learn the best.

It may seem unbelievable but even the smallest step to address debt can make a big difference. Simply identifying ways to reduce expenses and incorporating these into the lifestyle should free up some cash to apply toward the debt. Use online and printed coupons, do not purchase an item unless it is on sale, and only buy things that are needed. This is not the time to buy that new sweater when there are already ten in the drawer.

Some people manage to save big on their energy bills by being more frugal with heating, cooling, and lights. Turn off the lights when exiting a room and adjust the thermostat to conserve use of heat and air conditioning. Unplug appliances and computer equipment when they are not in use or use outlets that adjust energy feeds to these items during down time. Run the washing machine and dishwasher at night when energy costs are lower. Instead of turning on the TV, grab a book or socialize with friends.

When as many expenses as possible have been reduced or eliminated and additional action must be taken, consider supplemental income. Take a night job at the mall or in a discount store to earn extra cash. These jobs are great because they expand the social network and also feature employee discounts on purchases. This extra percentage off equates to big bucks when purchasing big ticket items.

If family obligations prevent you from leaving home for a second job, consider working online. Serve as a product or service affiliate, earning commissions each time a sale is made. Start a blog and sell advertising to generate income. Come up with a creative product or service and market it online to consumers. Tutor students virtually in the most popular school subjects or standardized test preparation. Online business opportunities are virtually endless.

A more formal approach to debt management is sometimes needed. Debt consolidation loans organize debt and lower the interest rate to make payments more affordable. Consolidators help clients structure their loans and find other ways to save money. They also advocate consumer savings, so be prepared to place a certain percentage of each paycheck into a savings account.

There is no cookie-cutter debt management program that everyone can use. Each person has a different financial situation so there are different ways to manage any debt that is included. A combination of approaches may be required to address the largest amount of debt but there is always a solution, even if it means filing for bankruptcy and starting fresh.

By Staff Writers | Posted in Credit Counseling, Debt Consolidation, Debt Settlement, Personal Finance | Tagged , , | Comments (0)

Debt Consolidation Loans

July 23, 2011 – 4:59 am

Whether being in debt is a one-time event or a regular occurrence, it is frustrating. People who are constrained by debt and engaged in a constant financial war can be affected mentally and physically. They do not realize that there is an easy way to improve their financial situation. Though it requires diligence and time, these small sacrifices are worth the reward.

One of the safest ways to handle debt is to take out a debt consolidation loan. Not only does this loan organize debt, it also shows that the money owed can be repaid. Sometimes, all people need to see is that the situation is temporary. This allows them to approach it from a more positive viewpoint, increasing their determination to free themselves from debt. Once they are out of it, they take away a valuable lesson.

A consolidation loan does just that- it consolidates all sources of debt into a single monthly payment. Without the loan, payments are due to multiple creditors on different days each month. Unless an individual is very organized, it is easy to miss a payment due date, worsening the financial situation. Simply getting all debt in one place and only having to make one payment each month can work wonders for some people.

When a consolidation loan is used, a person is not alone in the battle against debt. Professional consolidators are there to help, advising the individual on the proper financial choices and helping him or her keep on top of the loan payment. These allies also help lower the interest rates on debt, resulting in a loan that features a rate much lower than that carried by each individual debt. Having a lower interest rate makes it easier for a person to begin paying down the debt.

The money saved by making lower monthly payments should be put to good use. This does not mean going to the mall or on an expensive vacation. Instead, the cash should be placed into an interest-bearing savings account. After a thorough review of expenses, a consolidator may help a client find other areas where expenses can be reduced. This extra money should also be placed into the savings account. By establishing a monthly savings goal, anyone can begin building a nest egg.

The cash in the savings account should only be used in case of emergency. Otherwise, it can be kept for a future purchase like a car or home or saved for retirement. Some people even take second jobs so they can put more money into the bank. There are plenty of opportunities including online work that can be done from home.

Between a debt consolidation loan and a regular savings plan, a person can get on the path to a positive financial future. When unexpected emergency expenses arise, cash from the savings account should be used rather than a credit card. After debt has been reduced to zero, the individual should create a new budget that enables living within the means while continuing to save money.

By Staff Writers | Posted in Debt Consolidation | Tagged , , | Comments (0)

How to Set Up an Emergency Fund

July 23, 2011 – 4:58 am

When we first begin our careers, our parents advise us to save three to six months’ worth of income as an emergency fund. They often do not realize that we barely make enough money to eat, let alone save. As we get working years under our belts, we move into a more comfortable financial position. We can then begin stashing cash into that fund that we will hopefully never need. Unfortunately, recent national economic events have forced many of us to tap into this account.

If we find ourselves in debt, we usually take steps to manage it before things get completely out of control. Just because our focus is on debt management, we should not stop contributing to the emergency fund. This account is a necessity, whether we are involved in credit counseling or filing for bankruptcy. Remember, the situation can usually get worse so it is important to have cash on hand if that happens.

When a person is paying off debt, new debt should not be created or the payoff period may be extended. If an unexpected expense arises, the emergency fund can be used rather than a credit card or loan. People without emergency funds are often driven to extreme measures like taking out payday loans. Having extra cash to pay for a car repair or appliance replacement prevents debt from increasing.

Experts currently recommend an emergency fund equivalent to between six and 12 months of living expenses. That way, a person who loses a job should have enough money to carry through until the next job is obtained. For most people, saving this much cash is a pipe dream, especially if there is existing debt to wipe clean. The short-term goal for the emergency fund should be to allocate enough money to cover typical unexpected expenses. Putting away about $1,000 over several months should be sufficient.

To prevent the urge to tap into the fund unnecessarily, this cash should be kept in a separate account. An interest-bearing savings or checking account is the best bet. A CD is not recommended because it does not provide easy access to the money without financial penalty. Whether they visit a local bank or look online, consumers should be able to find an account that earns interest.

To build an emergency fund, deposits should be made monthly. For someone consolidating debt, these deposits may start off small. If $25 is saved each month, the emergency fund should total about $500 after 20 months. By saving $50 monthly, this balance can be reached in under one year. Whenever money is withdrawn from the fund, it should be replaced as quickly as possible.

Some people do not make saving money a priority and they soon come to be sorry. It takes just one flat tire or medical emergency to put some people into debt. For someone already facing a pile of unpaid bills, an event like this can be even more detrimental. To be prepared for such a situation, every one of us should create and maintain an emergency fund.

By Staff Writers | Posted in Personal Finance | Tagged , | Comments (0)