If you are in debt there are several options for attempting to repay your debts. One of the most popular options is credit counseling. Credit counseling allows you to work with a credit counseling services that will contact your creditors and develop a new monthly payment schedule, generally with reduced interest payments, to repay your debt.The credit counseling agency will collect a payment from you one time per month and will apply this payment to all of your consolidated debt. You must have sufficient income to repay your debts and all debt payments must be made on time.In exchange for debt negotiation, you will pay the credit counseling service companies a set fee which can range from $10 to $140 per month.
Pros of credit counseling services
Many view credit counseling services as a good alternative to bankruptcy. Debtors can avoid filing for bankruptcy, and many debtors may be able to pay off their debts within 5 years. Obviously, there are good credit counseling agencies and bad. Some of the larger services may have agreements with creditors and may have an easier time negotiating a new payment schedule.Credit counseling may help you live within a specified budge and can speed up your debt payments. It also allows you to make one monthly payment to the credit counseling agency instead of multiple payments to multiple creditors.
Cons of credit counseling services
Unfortunately, not all the news is good news. Like bankruptcy, using a credit counseling agency can affect your credit score. In fact, if you hire a credit counseling agency to help you with your debt repayments, this may appear on your credit report.Credit counseling may make it difficult to get new lines of credits, and you may be unable to continue to use the lines of credit that you already have. In addition, and this is a big one, disreputable credit agencies may fail to pay your creditors according to your debt repayment plan and may charge high fees for their services. Counseling services may also charge high upfront fees that will not be applied to your outstanding debt balances. Keep in mind that monthly fees will also not be applied to your debt balances.
Debts paid by Credit Counseling Agencies
Debts which may be consolidated by the credit counseling agency can include medical bills, credit card bills, unsecured bank loans, balances owed on car loans (which are in default), utility bills, student loan bills and tax debt. There will be certain types of bills that cannot be lowered or consolidated, such as child support, spousal support or criminal fines.Secured debt such as a car loan or mortgage is also not consolidated by the credit counseling agency, although the agency may be able to negotiate a payment plan to help you avoid repossession of your asset or foreclosure of your home.
Filing Bankruptcy as an alternatives to Credit Counseling
Credit counseling may not be right for everyone. If you do not have enough money to pay the minimum payment on your debt balances, plus the monthly fee, you may need to find an alternative. Credit counseling agencies are trying to get you out of debt and may accelerate your debt payment.If you have reviewed credit counseling and do not think it is right for you, you may consider filing for bankruptcy protection. Filing for Chapter 7 Bankruptcy will allow you to discharge most types of unsecured debt by liquidating your assets and using the money from the liquidation to pay your creditors.If you do not qualify for Chapter 7 Bankruptcy, you may be able to file Chapter 13 Bankruptcy. Chapter 13 Bankruptcy will stop home foreclosures, wage garnishments and bank account levies and will allow you to restructure your debt payments to repay your creditors over a 3 to 5 year period.Debts are paid in priority order, according to bankruptcy law, and a trustee is assigned to your bankruptcy case to distribute payments to your creditors. Creditors are also barred from contacting you or continuing their harassing debt collection tactics while you are under bankruptcy protection.No one wants to file for bankruptcy. It is a serious financial decision which should not be made without serious financial consideration, but if you have evaluated all of your other financial options and feel like filing bankruptcy is right for you, contact us by completing the FREE evaluation form. We will help you find a bankruptcy attorney in your area who can answer your bankruptcy questions.
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