Credit Counseling And Debt Management PDF Print E-mail
Written by Jackson Roberts   
Friday, 20 August 2010 19:15
Recent reports in the financial media contend that consumer spending has changed dramatically in the past few years. Before the housing bubble burst, loans and credit were easy to come by and Americans were taking on new debt at a furious pace. But ever since the housing market began its free fall and the recession took hold, consumers have generally focused on saving and trying to pay down the debt they accumulated. For many, though, the combination of high interest rates, the size of their debt and a loss of income have made repayment all but impossible.
by JacksonRoberts


Recent reports in the financial media contend that consumer spending has changed dramatically in the past few years. Before the housing bubble burst, loans and credit were easy to come by and Americans were taking on new debt at a furious pace. But ever since the housing market began its free fall and the recession took hold, consumers have generally focused on saving and trying to pay down the debt they accumulated. For many, though, the combination of high interest rates, the size of their debt and a loss of income have made repayment all but impossible.

High mortgage payments on homes that are now "upside down" in value is certainly a major debt issue, but it may well be that unsecured debt (such as credit card debt and personal loans) is just as serious. With interest rates as high as 29.99% on credit cards, the combined monthly payments can many times approach or even exceed the size of the mortgage payment for many borrowers. In contrast, so-called "predatory" lending very seldom resulted in first mortgage interest rates in excess of even 10%.

The disturbing nature of this situation has caused unprecedented interest in unsecured debt solutions. This is no doubt also due in part to the fact that many consumers are only making the minimum monthly payments on their accounts, a pattern that draws out payoff times to truly unacceptable lengths. If you find yourself in a similar situation, then you may need the package of benefits found in a debt management plan (DMP) through a credit counseling agency.

Besides the actual financial counseling, which can be invaluable for some, credit counseling's principal benefit is that through the DMP, it can lower the excessive interest rates being charged on the unsecured debt. In fact, some creditors may drastically reduce or even eliminate interest rate charges. This allows repayment terms to be shortened to just 3 to 5 years.

Another benefit of DMP's is that late and over-limit fees become a thing of the past. This undoubtedly contributes to the abbreviated repayment terms as well. Accounts are also re-aged to "current" status by the creditors for credit reporting purposes.

Consumers who are stressed out by the constant need to stay on top of payment details (changing due dates, minimum payments, agreement changes, etc.) for multiple accounts will also find relief in the single consolidated monthly payment that a DMP includes. Organization skills that were previously required will no longer be necessary, which is good news for those who aren't meticulous about their record-keeping. Adjusting to one payment on the same day of each month will be a change they should welcome with open arms.

Collection phone calls are a very real concern for borrowers who are behind on their payments. A DMP can help with this too due to the fact that these companies have close relationships with the creditors. They are very effective in getting creditors to stop the harassing collection phone calls. Keep in mind, though, that the collection calls will resume if you drop out of the program, and that DMP's are intolerant of late payments.

The final benefit that consumers can expect from a DMP is that their credit score will not be damaged. The Fair Isaac Corporation (FICO) states that enrollment in a DMP is not a factor that affects a credit score. The fact that a consumer is paying some of their accounts through a DMP will however be noted on their credit report.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Jackson Roberts is a debt expert and specializes in debt settlement. He has primarily helped indebted consumers reduce their debt responsibly through credit counseling services.