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Credit Counseling: Choose the Right Credit Counseling Service for You

Sep 10, 2008
Facing a mountain of debt? Hiding from collection agencies? Dreading the phone ringing? There isn't a way to magically make all your debt go away but there can be relief. Consider credit counseling. Because of the state of the current economy, more and more people are choosing to utilize this service. You are certainly not alone in your decision.

A credit counseling service will work with you in determining a realistic but strict budget based on your income and assets. They may recommend selling a newer model car and buying an older one and putting the difference in cash towards your debt. Or perhaps encouraging you or another family member to get a second job to help pay bills. The service will also work with your creditors in reducing interest rates, getting rid of late payments and over the credit fees.

Most importantly the service will negotiate with each of your creditors to come up with a new monthly payment that you can manage. That payment will be split proportionately among your creditors, usually based on the amount owed to the specific creditor as a percentage of the total debt owed to all creditors.
While you could do everything the credit counseling service does yourself, your creditors will take the service more seriously, especially if they've worked with the service before.

The following tips will help you make an informed decision when choosing the credit counseling agency that is right for you. The objective is to find a service which puts your best interests first, is experienced, established, and ethical.

One of the most important things you should look for is an agency that is insured and bonded. This will protect you in the event that the agency closes down. You pay the agency and the agency then splits the payment among your creditors. You don't want the agency keeping the payment because they're in financial trouble or are unethical.

The agency you choose should have their system set up to pay your creditors on a monthly basis. It will do no good to work with someone who pays on a less frequent basis. This will damage your credit even more. Occasionally payments are made on a twice a month basis. Keep in mind that the agency, while making the payments to your creditors, depends on you to pay them. If you don't, the agency won't pay your creditors. With some agencies it is possible to set up an automatic withdrawal from your checking account or have it electronically sent from your paycheck.

You need to discuss fees and get everything in writing before signing any kind of contract. Many credit counseling agencies charge a monthly fee, in exchange for their services. You want to make sure that they won't keep your entire first months payment to cover these fees. This will only put you further behind. You may have to make two payments in advance or pay the agency an upfront fee and the first payment. It is best to look for a credit counseling agency that is government-approved. Chances are they will charge a much lower fee.

A credit counseling service or agency can be a lifesaver if you're drowning in debt.
About the Author
Dee Power is the author of several nonfiction books. Find out more about Credit Card and Debt Management and Loans as well as Ways to Find Money
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