Credit counseling is considered an alternative to bankruptcy chapter 13.
Your credit counselor will propose a payment plan to help you pay back your debts. According to the plan, you will continue to pay a portion of debt each month.
Some of the credit counseling agencies are partially funded by credit card companies.
The credit counseling is designed such that creditor can get their loan back even if it means reducing the interest rate or the principal amount. If you file for bankruptcy chapter 7, the creditors will get almost nothing. The creditors have much more control if you choose credit counseling over bankruptcy. On the other side, filing for bankruptcy is a serious decision. You don’t want to take this action unless you have tried very best to get out of debt.
How to Avail Free Credit Counseling Services in Connecticut?
Follow this link to find a list of approved credit counselors in your area. The first session with your credit counselor is free. It costs you nothing. You can ask questions. The objective of this session is to review your financial situation. An approved counselor reviews your case to help you find a way out of managing debt. If you want further help from the counselor, you’ll need to sign up for their program.
Key Objectives of Credit Counseling
- Helps you pay back your loan in 48-60 months.
- Budgeting help
- Debt management plan (if required)
Credit Counseling Scams
Credit counseling agencies also offer exclusive debt management plans. You can pay off your debt in 48 or 60 months if you follow the plan. Under this plan, you pay the loan installment to the agency and the agency pays it to your creditors.
The role of a credit counselor here is to negotiate a lower interest rate with the creditors or get them to accept a lower amount instead of the full amount. It takes an expert negotiator to tackle this job. There are scams in the country. You might come across firms who will keep your payments for a few months. The credit card payments will accumulate, you’ll be charged late payment fee and a high-interest rate. Then the credit counselor will call the credit card company asking them for a deal. A fair company will also negotiate a deal with a company but without blocking your payments.
Your credit score decreases if you don’t pay back your loan installments for a few months. Stopping the payments doesn’t do any good for the situation.
How to Identify a Credit Counseling Scam?
A good credit score reduces your interest rate. Some credit repair firms ask to remove certain information from your credit report that will lead to a higher ranking. Removing a correctly reported event from your credit report is illegal and can create trouble. As per the rules, the financial events will stay on your credit report for a few years. You can file a dispute for wrongly presented information. However, to do this, you don’t have to pay hundreds of dollars to a credit counseling agency. You have access to free credit reports. Get one from any of the major credit reporting bureaus. After that, it should cost you less than $100 to hire a credit repair company to solve the issue.
Another thing to note here is the fee you pay for the debt management plan. You are using this service to reduce your debt. Don’t pay hundreds of dollars for the debt management plan. The credit counseling agency should earn something because they are managing the plan but the fees should be reasonable.
Last but not least, only work with a HUD-approved counselor. The counselor will help you if you are facing foreclosure, bankruptcy or other financial issues. For further guidance, you can contact us here.