Credit Cards

How Credit Counseling Works

Credit Counseling and/or DMP’s (debt management plans) as it is often called, is one way to get out of debt. Normally, a credit counseling company will negotiate a reduced interest rate on your credit cards. On average, you can expect to pay back your entire balance at a reduced interest rate, usually between 3-12%. In some cases, the creditors may agree to reduce the principal balance owed or bring the interest rates down to 0%. Participating in a credit counseling program will save you thousands of dollars in interest and will eliminate your debt much quicker than if you continued to make the minimum monthly payments directly to your creditors. In order for credit counseling to work, you must have sufficient income to pay your basic bills and be able to support a payment plan. You must also understand that participating in a DMP may have a negative effect your credit profile.

While you are in the plan, some creditors may require that you include every credit card that you owe. You may also be required not to incur any new debt while you are participating in the program. This program will have an impact on your credit profile. Once enrolled in the program, your credit counselor will try to have late payments and over-the-limit fees forgiven. This usually takes place once you’ve established a six-month track record of good payments.

Be sure that you do not miss a payment to the credit counseling company. You should make sure that your payment arrives in time for your funds to be disbursed to your creditors. Otherwise, you may be charged additional late fees and other charges, which could also adversely affect your credit profile.