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On the one hand, credit counseling can be a good way to resolve debt while avoiding bankruptcy. On the other hand, it can be like an onion; Once you peel back the layers, you may cry after seeing what you’ve been through.
Consumer debt counseling service companies organize themselves as either for profit or not for profit. Lately, nonprofit credit counseling in the US has been in the media and in the headlines for the Internal Revenue Service (“IRS”). The IRS has cracked down on some of the biggest players in the industry. The tax-exempt (not-for-profit) status of forty-one credit counseling companies was revoked; They found that many companies do not offer the level of consulting or education necessary to qualify for tax-exempt status.
What credit counseling companies do (regardless of profit status) is arrange for you to pay your full principal balance with arrangements that are easier for you to service such as longer amortization periods and/or lower interest rates. This means that if you owe $10,000 and you’re paying an average of 15% interest on all your loans, you still owe $10,000, but expect them to lower your interest rate to your original rate. Will cut taxes at least in half and set more affordable payments. Usually over a long period of time. Provided you can afford the full plan and fees, you will be debt free at some point. Remember not for profit doesn’t mean free, they still charge you.
Credit counseling is reported as R7 on your credit report and is viewed negatively by every credit granter. As a result, if you’re on a 7-year repayment plan, don’t count on the time it will take to use a credit card, get a car loan or mortgage, and re-establish your credit rating for the next 7 years.
Credit counseling originated in the 1980s when lenders banded together to collect money from people in debt. The new consumer credit counseling banner at the time was away from credit granters under a friendly not-for-profit status that built trust and worked well with the public. People signed up in droves and for-profit companies quickly followed suit.
If you owe less than $10,000, credit counseling probably isn’t a bad idea and is a good alternative to bankruptcy. However, people still fail in these schemes as it takes a long time and costs a lot of money in maintenance charges over the years.
A newer entrant in the debt management market has been debt settlement. Debt settlement has been a popular option in the US and the movement is gaining momentum in Canada. Unlike credit counseling, debt settlement actually reduces the principal amount you owe to about 40%-70% of your original principal balance. A credit counseling service doesn’t do that, it just stabilizes or lowers your interest rate.
If you owe more than you can manage, consider debt settlement as an option. This is an excellent opportunity to clear out your debt quickly while saving you a substantial amount of money without doing the same damage to your credit rating as bankruptcy. I have seen people with $50,000 in debt become completely debt free within 30 days if they have the right resources. This can take up to 36 months depending on their ability to organize others. Debt settlement companies are also an agent working in your best interest and are not directed or managed by the same people as credit counseling companies. In most cases, the fees of debt settlement companies are based on the money you save, which means they are working to save you as much as possible. Look http://totaldebtfreedom.ca/ For more information on debt settlement.
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