A credit counseling agency can help you make consistent debt payments, which will show positively on your credit report and can be influential for your credit applications in the future. The company will give you the help that you need to get peace of mind and a concrete way to get you back to financial health.
Debt counseling services are usually nonprofit organizations, funded by creditors. Most debt counseling services get their fees from a portion of payments sent back by creditors. This makes credit counselors look like a tool of the lending institutions.
What to Expect from a Debt Management Plan
A debt counseling agency can help to stop collectors from bothering you, stop late fees and reduce interest rates via a debt management plan (DMP). Be aware, however, that you’re required to abstain from using old accounts or opening new ones until the program is complete.
As your creditors report the DMP to credit bureaus, a note stating that you’re undergoing credit debt counseling will show up on your credit report. But when all debts have been paid off, the note is removed and it no longer affects your credit.
If your credit has already damaged before you enroll in a debt management program chances are the DMP record may temporary affect your credit. You will get your finances back on track by making sure your payments are all current and stay current during the program.
Credit counselors can help you get out of debt, but they can’t totally erase any past damage to your credit report. Although past bad credit can stay on your report for several years, working with a debt counseling agency can still help you get approved for credit at some point in the future.
Before You Work with a Credit Counseling Agency
Before you consider working with a credit counselor make sure you understand your financial status and whether the company can offer real help.
When your debt piles up beyond a certain point, there seems to be no realistic way to pay it off. You need a helping hand to get you back on your feet. But you don’t need a debt counseling service if your interest rates are too high as you usually can negotiate a lower rate with your credit card companies.
Once you’ve determined if you’ll be able to work with the firm, you can let the credit counseling agent to consolidate your debt. Through a debt management program you will be able to make consistent payments against your outstanding balance. This will show positively on your credit report and can help you get approved if you apply for credit in the future.