Myths About Credit Counseling
December 6, 2017
Myths create confusion around a helpful topic. Many people want to avoid credit counseling as if it will create legal complications which is not true. Credit counseling can actually help you achieve your financial goals. It can help you get out of debt but only if you forget about the “cliches & myths” regarding this option.
1. Credit Counseling is Expensive
It is not true at all. Credit counseling is a free service provided by govt. Agencies to help you resolve your debt. The mission of National Foundation for Credit Counseling (NFCC) is to provide affordable financial education to their customers. A small fee is charged for this service, but the fee is waived if you cannot afford to pay it.
2. Credit Counseling is Debt Management
People talk about debt management and credit counseling as they are same while they are entirely different processes. Many times a single firm is offering both services. So it is easy to confuse credit counseling with debt consolidation.
A credit counselor is a helping hand in budgeting and financial planning. It usually is free or has a nominal fee. A debt management program (DMP) is a professional service for debt consolidation. It is usually not free.
3. Credit Counseling Can Reduce the “Owed Amount”
A credit counselor can reduce monthly installments but, he cannot cut your total debt. For example, if you are unable to pay a $1200 monthly payment they may help in negotiating it to $600, but you still have to pay the total. So it is not saving, only a temporary relief so that you can catch up with your bills.
4. Never Opt for Bankruptcy
Filing bankruptcy can ruin your credit score, but if you are deep in debt, then it may be the best possible way out. Ask your credit counselor about it. If after reviewing your situation, a credit counselor suggests filing bankruptcy then you should certainly go that way.
5. Debt Consolidation is Expensive than Debt Settlement
Debt settlement is useful if you can payback in full. If you are considering this option, beware, it has many hidden costs:
- Increased payable tax
- Late fees and penalties
- Wait time for 2-3 years
- Lowered credit score
- Company Charges
In debt consolidation, you convert high-interest debt into a smaller (low-interest) monthly payment. This feature makes debt consolidation much more straightforward, open, cheaper and a quick process.
6. Debt Management Ruins Your Credit Score
People believe debt management plan will hurt your credit score. This myth is not true in this sense that just signing up for a DMP should not and will not hurt your credit score. FICO recognizes that you are doing your best to pay your debt with a DMP. However, along with the path, there may be several steps which decrease your credit score. Things like paying on time, closed accounts, settled amounts; the amount owed will have a positive or negative impact on your credit ratings.
7. Credit Counseling cannot stop legal action
This myth is also a false one. The fact is that lenders hesitate to take legal action due to expenses involved and overhead. Your credit counselor can work with the lenders to postpone any legal action. Once your creditors start seeing improvement in your payments, they will be no need to consider legal action, and this will be a win-win situation for all parties involved.
Conclusion
Myths should not decide our future because reality can be stranger than truth. In life challenges like legal, medical and finance, one should always look for professional advice to find a solution. If you are deep in debt, then immediately get help from a good credit counseling firm. The situation will undoubtedly improve.