If you’ve been struggling with a large amount of debt, you may have considered taking part in a debt management program (also called credit counseling). These programs seem to offer the kinds of solutions that you’re looking for, but this makes you wonder if they’re too good to be true. What can you really expect from credit counseling?
The Negative Side of Debt Management Services
Before blindly jumping on board with the first credit counseling offer you see, there are a few things to consider. Debt management can help, but these services generally come with a few pitfalls.
- Most debt management companies really are there to make money.
Yes, it’s true. Even if the company has a non-profit status, this designation only refers to how their business is organized. They are allowed to make all of the money that want. They just have to distribute their earnings differently than a for-profit corporation. Even though many of these companies choose to loudly advertise the fact that they are “non-profit” in order to make you think they’re doing a public service, at least they typically don’t charge a great deal for their services.
- You could probably do everything the service will do on your own.
When you pay for credit counseling, you’re essentially hiring someone to negotiate with creditors on your behalf. These companies don’t have any sort of special authority, so, technically, you could do the same thing.
- There is a good chance that your credit score will drop.
This one is tricky because if you’re in debt to the point where you’re seeking a debt management program, your credit score is probably already in trouble. If credit counseling ends up working for you, your score will actually improve in the long run. However, while your debt payments are negotiated, it’s possible that some of your payments will be late and reported as such to the bureaus. This will cause your score to fall by at least a few points.Some creditors may even close your accounts. This means that you won’t get the benefit of having these older accounts on your credit report, and your score will probably lose additional points.
- You’ll have to postpone any big purchases.
Once you enter a debt management program, you won’t be able to take on new credit or apply for a loan until you’re back on track with all of your payments. So, before seeking out credit counseling, make sure that you won’t need to purchase a car or borrow money for any other reason for at least several months.
Credit Counseling Benefits
While there are drawbacks to entering a debt management program, there are also benefits. You can expect to pay lower interest rates. And you will have just one monthly payment to make instead of several. You may also be able to avoid filing for bankruptcy. Although, this option will still be available if you find that you are still unable to make your restructured payments. In fact, credit counseling is actually a prerequisite for bankruptcy.
You also won’t have to worry about making your payments on time. Most debt management companies will set up an automatic withdrawal from your bank account every month. However, if you want to get out of debt faster, you can increase your payments.
Buying a Car with Damaged Credit
If you’ve emerged from a debt management program and need a car, Auto Credit Express can help. We can match you with a local dealer that can work with unique credit situations. And through making payments on your auto loan, you will be able to rebuild and repair your credit history.
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