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Credit Counseling is Not For Everybody

Have you heard of credit counseling? Who needs this? Does it really help people out of their debt? How will this affect your credit score?

Some people, desperate to get out of debt, would usually do anything, even if it were too good to be true. Most of these companies are fraud due to the amount of money they can get from you. In fact, debt counseling is now a $7 billion industry but most are illegitimate.

But don’t worry as there are also legitimate companies that can offer you credit counseling and can help you back on your feet. Before you go into counseling, ask yourself first, do you really need this?

Usual counseling services will help you negotiate for lower payments with your credit-card company and other lenders. People should only consider undergoing this service if they are behind on their debts and are in danger of going into bankruptcy.

If you get into unnecessary counseling, this won’t help you but will even hurt your credit ratings. So if you are capable to pay your bills and are current on all your accounts, then you don’t really need credit counseling. Having too high interest rates should not be an excuse to get this service as you can still negotiate a lower rate with your credit-card companies. Or you can look for credit-card companies that have lower interest rate.

Don’t rush into this service as this can have some effect on your credit, or if you’re lucky, this can have no effect at all. But going into this service unnecessarily can discourage some lenders into doing business with you. And the consequence of going into this service will depend on how lenders will report your account to credit bureaus.

Some credit card companies report customers as delinquent on their bills unless they have already paid three consecutive payments on the new minimums negotiated by credit services. Being reported as delinquent on payments can definitely hurt your credit scores. But if you are lucky, some companies may just add to your files that you are undergoing counseling.

This service can have advantages and disadvantages. Deciding to go into this service should take time and this should only be availed by people who can’t pay the minimums on their credit-cards; consistently late on paying one or more of his/her regular bills; people who are hounded by creditors and collection agencies; and people who fail to work out reasonable repayment plans with their creditors.

This is also not recommended for people who are too far in debt. Creditors usually have limits on how little they can accept and this service will not help you cut your payments enough to help you out of your debt. The best option in this situation, though this might be difficult to accept, is to file for bankruptcy. Any responsible credit counselors should advise you during your credit counseling that bankruptcy is the better option if you can’t repay your debts in less than five years.

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