Credit counseling offers a variety of services to people who are overwhelmed by their current financial situation. While each company varies in its offerings, most provide basic financial budgeting advice and also will negotiate with your creditors to restructure debt for a nominal setup fee and then a monthly charge. However, there are some possible disadvantages to using even the most ethical credit counseling company.
Credit Advantages
One of the biggest advantages to using a debt management plan through a credit counseling company is avoiding bankruptcy. Bankruptcy can seriously hamper credit for 7 to 10 years.
Credit Disadvantages
The fact that you have used credit counseling usually stays on a credit report for up to 7 years, and some lenders consider it a negative credit event. Credit cards being managed by the credit counseling company will also show up as closed by credit grantor.
Financial Advantages
Many credit counselors can help debtors save money by getting late fees waived, interest rates lowered, and in some cases even the balance reduced.
Financial Disadvantages
The monthly fees could exceed $20 per month, which might be more helpful toward debt repayment. This especially applies in smaller debt cases.
General Advantages
Credit counseling companies can often get creditors to work with them on repayment alternatives more effectively than consumers can do with their own resources.
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