Why does credit counseling enable you to get payment reductions with your creditors? The answer is that credit card companies created credit counseling decades ago to provide overwhelmed debtors with supportive services to enable them to manage their debt payments, maintain current payment status and eliminate their debt in a reasonable period of time.
It might at first sound odd that a for-profit credit card issuer would agree to lower your interest rates and reduce your payments if they thought you were a higher risk. After all, the point of risk-based pricing is to allow card issuers to offset higher default risks by charging higher fees and interest.
To understand this, you must understand how credit card issuers maximize profits. Sure they would like for you to pay as much interest as possible for as long as you live. However, they understand that if they don’t provide real benefits to you in your time of need, they risk losing a lot of money when you default on your debt.
The Catch
The benefits of going through credit counseling can include lower payments, reduced interest rates and a shorter repayment term. You may even get relief from late or over-the-limit fees. While these are great benefits, there are a couple of requirements you must meet before you are eligible for this assistance.
First of all, you must demonstrate financial need. If you live paycheck-to-paycheck, it is very likely that you would be eligible.
Secondly, you must be willing to give up the use of your credit cards. While this may seem impossible, understand that those cards are not the lifeline that you think they are. As the balances grow, they weigh you down and threaten your very financial future. Credit cards are only a lifeline if they carry no balance. For a creditor to agree to lower your interest rates and reduce their profits, they require that you commit to your debt management program by including your other credit card accounts.
Credit counseling is not simply a consolidation plan to lower interest and payments. While those are components of debt management programs, credit counseling serves to help you balance your budget, maintain a spending plan and support your repayment efforts.
If you want to compare repayment options, simply look at the repayment projection on your credit card statement. It shows you how long repayment will take and what it will cost you if you continue making minimum payments. By completing credit counseling, you should be debt free within 3-5 years.
To find out more, contact a reputable credit counseling organization today. Accredited Financial Counselors provide you with a good faith estimate of what your new payment would be through your debt management program. They provide you with documentation of your own tailored plan so that you may review the details and compare with other options.
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
Favorite quote:
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."
Thomas Jefferson
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