Have been worried about your debt? You are unable to pay off your liabilities and nightmares haunt you. We would like to tell you that no matter how badly you are covered up in debt, there remains hope. You always have options to deal with your crises. Now the question is which option to select. We will advise you make the right choice that suits best in your situation.
Following are the most common solutions people go for:
- Credit counseling
- Chapter 7 bankruptcy
- Debt consolidation loans
We shall focus on credit counseling today. Before you sign up for it, you should be aware of the following facts.
Introduction to Credit Counseling?
A credit counseling agency helps you to develop a plan. This is specifically known as a DMP or debt management plan.
Credit counseling agencies are non-profit agencies but be aware that it not necessary that they don’t charge you any fee. Their services may not be free always.
They help you develop a fair plan and they try to help you out by talking to your lenders to reduce the interest rates. They try to convince and negotiate better terms with your creditors. If you properly go according to the DMP, it’s quite possible that you recover from your debt crises in around five years.
Truth about Credit Counseling: Poor Success Rate
Sad news for people considering credit counseling: these debt management plans have a success rate of only 20% to 26%. This means only one out of five people actually complete their debt management plan.
Another noticeable thing is that mostly the people who have a reasonable amount of disposable income left at the end of each month are successful in getting out of debt through a DMP. This information is provided by the National Foundation for Credit Counseling themselves. A reason to this has been that the people started believing they can complete the plan themselves instead of continuing with a counseling agency.
Reasons for Poor Success Rate
There is no single and fixed reason why people generally fail to complete their debt management plans. The truth about credit counseling is that lenders offer only a limited amount of concessions during negotiations to the customers who go for credit counseling.
In easier words you can say that when people sign up for a debt management plan through credit counseling, they see that it cannot lower the debts to a significant amount, they are most likely to leave the 3 to 5 year plan.
What Does Credit Counseling Actually Offers You?
Such a lower success rate implies that credit counseling is useful for only few customers. This is because it all depends on the creditors. The debtor cannot call the shots. It’s the creditor who decides what concessions to offer. It is very rare that lenders will reduce your principle amount. We can categorize the offers by DMP into three parts:
- The counseling agencies are able to “re-age” their accounts
- They are able to lower the interest rates
- Late fee penalties can be eliminated or at least reduced.
Successful DMP Requires Discipline
A significant truth about credit counseling is that it requires the customer to have a fair amount of discipline. People get eager for results and they normally quit the program when there is no instant outcome.
A debt management plan wants you to quit using credit cards or take more debt until they complete their plan that is normally five years. Some people just don’t have discipline to handle such a program. They start taking more debt and can no longer make payment to their counseling agency and as a result they quit the program. This is a hard truth about credit counseling!
Other Options You Can Consider
Other options, as we mentioned earlier, are debt consolidation loans and chapter 7 bankruptcies. Both of them have better rates of completion especially the secured debt consolidation loans. The reason behind this is that these loans are secured by a valuable asset such as a house, property or a car.
Chapter 7 bankruptcy is also successful because there is no other alternative. Through bankruptcy, you can clear all your debts and keep safe your most essential assets.
The ugly truth about credit counseling makes you notice that debt settlement is a better alternative because it actually gets your debts reduced and people want results. Additionally, debt settlement consolidates your debts and it makes it easy for you to handle a single payment instead of multiple payments. Normally it take up to 2 to 3 years to clear your debts depending on the amount of debt. Learning about the truth of credit counseling, you must see why this is so.
Make your choice keeping in mind all factors so that you are able to manage your debt.