When it comes to credit counseling organizations, these are almost always nonprofit groups that provide counseling and education on money and debt management. In contrast, debt settlement companies, debt consolidation lenders, and credit repair firms are typically for-profit entities that promise to fix borrowers’ credit or personal debts—often after charging fees for services the borrowers could have done themselves for free.
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What Are Credit Counseling Agencies?
Credit counseling agencies are nonprofit organizations that provide advice concerning proper management of one’s finances and debts. They typically have free educational materials and workshops; the actual session usually takes about an hour at the onset, and they will offer follow-up sessions after the first counseling session for the participant.
Usually, they can assist anyone in need of drawing up a debt management plan (also called a payment plan) for all their debts. They can’t erase your debts. Under a debt management plan, you make a single payment to the credit counseling organization each month or pay period. The credit counseling organization then makes monthly payments to your creditors. It can impose fees on you for that.
Not always are reductions in amounts owed negotiated under debt management plans, but credit counselors usually try to decrease your total monthly payment instead. They might get the creditor to lengthen the time you have to repay a loan. They may also lower the interest rates. Usually, there are no tax consequences associated with this arrangement.
How Does One Identify a Credit Counselor?
Generally does the following:
- Works with a nonprofit organization.
- Advice regarding money and debt management.
- Helps set up a budget for payments.
- Gears towards having a payment plan with the creditors, and negotiating with creditors to not pursue collection or charge late fees while on the plan.
- Works to decrease the entire monthly payment, not to negotiate the amounts owed.
- Never advise not paying the debt.
- Many products are included in debt settlement.
External and internal debts are classified according to the standard practice of debt settlement companies that remove debts on behalf of lenders or Debt collectors. Their debts are then negotiated away by paying rather hefty lump sum amounts that they would have saved before battling. Under the law, any money you save in an account to be used by a debt settlement company belongs to you. That account must be controlled by an independent third party that should be able to grant access to you at any time to take funds without penalty; however, in theory, many of these companies collect money from you and consider it fees you paid to them instead of pointing out that it is money they should have been using to settle your debts.
Lenders for Debt Consolidation
Banks, credit unions, and other lenders offer debt consolidation loans, which are amounts borrowed for the purpose of paying off loans and paying back just one amount. You have just one payback period for this loan, thus simplifying your payments. Indeed, the debt consolidation loan itself may charge you a lower interest rate than what you are presently paying on your debts.
Before Officially Proceeding With a Debt Consolidation Loan
A low interest rate could very well be a teaser rate applicable for only a certain amount of time before the teaser rate expires, and may increase your payments since the lender may increase the interest rate. Your monthly debt payment, however, may be lower thanks to the extension of time over which it is repaid. It may cost you more in total when considering the length of the loan, fees, and costs than the combined original debt payments would have charged you.
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In many cases, credit repair companies promise to give you better credit or higher scores, just as if they were doing things you could do for free. They fight with advertising and social media. They generally work based on the negative items in your credit record, send disputes regarding these to the consumer reporting companies, including the three nationwide credit reporting companies (Equifax, Experian, and TransUnion), and if the reporting company considers the dispute valid, it is under an obligation to contact the creditor to verify that item. After 30 days, if the creditor fails to respond, the item is taken down from your credit report.
When Should You Consider Using a Credit Repair Company?
Never believe there are shortcuts to getting a strong credit history and higher credit scores. Through proper credit counseling, you can learn the right strategies to manage your debts and rebuild your credit responsibly. Consumer reporting companies, namely the three national credit reporting companies, will remove negative items from your reports upon finding that they were inaccurate or incomplete, or if they cannot be verified—this applies whether those negative items are disputed by you or a credit repair company.
You can dispute the mistruths on your credit reports by yourself and for free. Errors in your reports can be investigated and rectified, but there is nothing that credit repair companies can do to legitimately remove anything accurate and substantiated.
How To Identify a Credit Repair Company in Comparison to Credit Counseling?
- Usually, a for-profit company charges fees for its services.
- Commonly claims quick rises in your scores.
- Offers to remove negative items from your consumer reports, including the credit reports of the three nationwide-reporting companies (Experian, Equifax, and TransUnion).
- Often charges a monthly fee, which they justify by disputing the same negative items on your credit reports over and over.
Be wary of their monthly subscription fees. Many credit repair companies rely on telemarketing to sell their services. By law, any telemarketing credit repair company is prohibited from billing you or accepting any payment until two conditions have been met. The time frame in which they stated they were to render their services has elapsed. No upfront fee or continuing monthly service fee can be charged; therefore, the company would denominate it a ‘subscription fee’ or some such name.
They have supplied you with a report from a consumer reporting company. This report will indicate their success in delivering on the promised results, and it must be produced six months after achieving the results.
Final Thought
Take your finances into your own hands today! With Bruner Wright PA, our knowledgeable legal team guides you through debt management, credit counseling, and settlement with confidence and clarity. Don’t fall for the promises of for-profit companies that charge exorbitant fees for quick fixes; rather, get honest, expert advice to secure your financial future. Whether you’re considering a debt management plan, consolidation, or credit restoration, we’ll help you make informed choices that truly work for you.
Contact Bruner Wright PA immediately for a free consultation to begin constructing a more intelligent future toward financial stability.
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