For one thing, credit counseling can be a good way to settle debt and avoid bankruptcy. On the other hand, it can be like an onion; once you remove the layers, you may cry after seeing what you are doing.
Consumer credit counseling services companies are organized for profit or not for profit. Recently, non-profit credit counseling in the United States has been in the media and has come under the spotlight of the Internal Revenue Service (“IRS”). The IRS has cracked down on some of the biggest players in the industry. The tax-exempt (non-profit) status of forty-one credit counseling companies was revoked; They found that many companies did not offer the level of counseling or education required to qualify for tax-exempt status.
What credit counseling companies do (regardless of earnings status) is arrange for you to pay your full principal balance on terms that are easier for you to maintain, such as a longer repayment term and / or a rate. reduced interest. What this means is that if you owe $ 10,000 and you are paying an average of 15% interest on all of your debts, you will still owe $ 10,000, but hopefully they will reduce your interest rate to at least half of your original rate and establish more affordable payments generally over a longer period of time. As long as you can afford the entire plan and fees, you will be debt free at some point. Remember that non-profit doesn’t mean free, they still charge you a fee.
Credit counseling is listed on your credit report as an R7 and is viewed negatively by all creditors. As a result, if you’re on a 7-year repayment plan, don’t count on using credit cards, getting a car loan, or a mortgage for the next 7 years plus the time it takes to reestablish your credit rating.
The origin of credit counseling dates back to the 1980s when the grantors came together and created it to recover money from people in debt. The new consumer credit counseling banner at the time distanced itself from credit grantors under a more friendly nonprofit status that built trust and worked well with the public. People signed up en masse, and for-profit companies followed soon after.
If you owe less than $ 10,000, credit counseling is probably not a bad idea and a good alternative to bankruptcy. However, people keep failing on these plans because they take a long time and a lot of money is spent on maintenance fees over several years.
A new entry into the debt management market has been debt settlement. Debt settlement has been a popular option in the United States, and the movement has gained momentum in Canada. Unlike credit counseling, debt settlement actually reduces the principal balance owed by you to around 40% -70% of your original principal balance. A credit counseling service doesn’t do that, it just freezes or lowers your interest rate.
If you owe more than you can manage, consider paying off debt as an option. It’s an excellent opportunity to pay off your debt quickly while saving you a substantial amount of money without causing the same damage to your credit rating that bankruptcy would. I’ve seen people with $ 50,000 in debt totally debt free in as little as 30 days if they have the right resources. Others can take up to 36 months depending on their ability to settle. Debt settlement companies are also agents acting in your best interest and are not directed or managed by the same people you owe as credit counseling companies. In most cases, the rates of debt settlement companies are based on the money you save, which means that they are working to save you as much as possible. See http://totaldebtfreedom.ca/ for more information on debt settlement.