Consumer credit counseling agencies act as an intermediary between you and your creditors in order to establish a set, lower monthly payment plan that your creditors agree to accept, and that you can afford. The method used to lower your payments is simple enough to explain; your banks agree to lower your interest rates, and consolidate all of your payments into a single payment.
Credit Counseling offers one of the most common and legitimate ways to get your credit card bills reduced and under control with a single consolidated monthly payment.
There are benefits and drawbacks to working with a credit counseling service. And, there are qualifications to meet in order to be enrolled in their Debt Management Plan (DMP). There are also situations where you would simply not be able to financially commit to this type of program for debt relief.
Is a counseling agency right for you?
It depends. You will need to speak with a license counselor to get a direct lower payment quote. You can reach one now at 888-317-8770. Here are some immediate questions you can ask yourself that will help you get a feel for the affordability of a consolidated payment plan:
- Assuming you’re paying an average of 16% or higher interest rates across your combined unsecured debts, would getting these rates cut in half allow you to continue making your credit card payments while meeting all other monthly bills and obligations?
- If your interest rates were cut on your major bank issued credit cards, and your payments lowered, would the new lower monthly payments allow you to save money each month in order to start building savings that you can use in an emergency instead of a credit card?
- Do you have a dependable income and the discipline to stick to your debt consolidation payment plan?
Answering the questions above should help you readily identify whether a credit counseling service will work for you.
How does credit counseling lower monthly payments?
You contact a credit counseling service, typically over the phone, and walk through a simple budget analysis with a certified counselor. This will consist of questions about your debts, regular monthly bills, and your income. The counseling agency will have some set criteria they use that will identify which of your accounts can be accepted into the debt management (DMP) plans they offer. The credit counselor uses their automated system to contact the credit card companies you owe, putting forward a repayment plan. Most of this can be handled in one call to the counseling agency if you are prepared with an outline of your income, and your monthly bills.
Most of the debt relief you achieve through a credit counseling service will come from lowering your credit card bills, store credit cards, gas cards and medical bills. All credit counseling services have a formula that’s used to qualify your debts for lower monthly payments. This formula consists of:
- Your credit card balances.
- Who your accounts are with and what that bank or lenders policies are for lowering your payments through debt management plans offered through a credit counseling service.
- What money you have left in your monthly budget after your typical monthly expenses are calculated (this is often referred to as discretionary income).
- Whether you would have too much money left after all of your bills are paid – this sounds odd, I know, but banks do not want to limit their profit from credit card interest by lowering the rate for you if your income shows you can afford the higher interest rate you pay now.
The national average for lower monthly payments through a credit counseling service is roughly 2% of your account balances that are enrolled in the debt management plan. You can estimate what your lower payments would look like – prior to calling a counselor – using the example given below.
After your normal household bills are paid each month, do you have enough left in your budget to make a monthly payment of 2% of your combined unsecured credit card balances? If so, you are a good candidate for credit counseling.
Who is the best candidate to work with a counseling agency? These debt management plans are most effective with helping you pay back debts when you are:
- Current with your creditors, but you’re struggling to keep up with minimum monthly payments.
- You are behind with payments to creditors, but only by a few months.
Credit counseling is not ideal when you are already dealing with third party debt collectors and debt buyers. Many collection agencies and debt purchasers do participate in credit counseling repayment plans. But working with a debt management company when some, or all, of your accounts are in collections may not be a good idea. You can learn about other methods to deal with collection accounts through our above menu and navigation, and by using the search box located in our sidebar.
How can I benefit from credit counseling?
Some immediate benefits to working with a credit counseling company for someone struggling with credit card bills could include:
- Creditors often waive late payment penalty fees.
- Banks may offer an interest rate reduction.
- Your monthly minimum monthly payment may be reduced.
- You will no longer make direct individual monthly payments to the creditors that are part of your debt management program. You will make one fixed and easy payment to the credit counseling agency. The credit counseling service then breaks out individual payments to your creditors.
Your monthly payment is set up as an auto-draft from your personal bank account for the same day each month. You will typically continue to get your normal monthly credit card statements in the mail. This allows you to verify the payments are being made on time and to see that the bank is applying your payments according to the plan you set up with the credit counseling company.
How long do debt management plans last?
A repayment plan using credit counseling to consolidate your debt will typically last 4 to 5 years. The DMP cannot exceed 60 months by design. Your fixed payment is due on the same day each month for the duration of the plan. You cannot miss a payment while paying your debts through this form of consolidation. If you do not make an on-time payment, you risk losing the reduced monthly payment benefit.
You do have the option of paying more towards your debts on the plan, which would help you finish early. You can also withdraw from the plan at any time and take over payments to your creditors, but you may lose the lower interest rates.
If you’re struggling to make your monthly credit card bills due to higher interest rates, but have a dependable income, it is a good idea to talk with a credit counselor and get the information you need to evaluate what benefits you can gain from working with one. Using a counseling service to budget, consolidate, and repay bills can get you out of debt faster than making your current minimum payments on your own.
How much do credit counseling agencies cost?
There are limits to the fees you can be charged by a credit counseling agency when they are assisting you with a debt management plan. Those limits are set at the state level. The fee is typically going to be less than $50.00 each month. Nonprofit credit counseling services will waive the monthly fees in some instances if you fit a certain criteria.
What do you get in return for the fees you pay the agency?
- Your creditors agree to the lower monthly payments that you may not have been able to get on your own.
- This agreement means you don’t get calls from debt collectors.
- You now have a set payment amount and a set time frame to eliminate your debts that are part of the credit counseling program. You will be out of debt in 60 months or less if you stick to the plan.
- If you have missed a payment or three already, many creditors agree to re-age your account. This can help the account show current on your credit reports moving forward.
There are many scenarios where the credit counselor will be able to consolidate your credit cards and get lower monthly payments than you could on your own without the consolidation. The more accounts you have to enroll, the more likely the bill consolidation plan pays for itself.
Does consumer credit counseling affect my credit score?
When you enroll in a debt management repayment plan with a credit counselor, your accounts will be permanently closed by the credit grantor. Closing accounts can have a slight impact on your credit score (dropping only a couple points). If you want to be proactive you can close the accounts yourself before you enroll with a credit counseling company.
The accounts that you enroll in the credit counseling plan may appear on your credit report as being enrolled in a managed repayment plan. This does not impact your credit score, but it can affect the way your credit report is viewed by people who look at it in order to lend to you.
When starting out on the plan, it can be difficult to get new credit, and you are encouraged to not open any new credit without speaking to your credit counselor first. As you progress with your credit counseling payments over the course of a year or more, you may be able to qualify for a car loan, student loans – even refinance your mortgage. New unsecured credit card accounts while you are working with consumer credit counseling will be hard to come by. This is not necessarily a bad thing….
It is very simple to establish new credit upon completion of your debt management plan.
Can I estimate my lower monthly payments?
As mentioned earlier, the monthly payment relief you get from working with a counseling agency comes from interest rate reductions, and the minimum payment concessions that are prearranged with your creditors. Each bank has its own set of criteria for measuring what type of reduction in interest and payment you will get through your enrollment in a DMP. Even though there are differences in calculations from bank to bank, we can still apply some national averages and come up with a rough estimate of what your monthly DMP payment might look like.
Example:
You have $22,000.00 in total unsecured debts across 4 credit cards and one signature loan with a finance company.
Using an average of 2.1% of your total 22k debt as your new monthly payment for these 5 accounts, you would pay a fixed $462.00 every month until your debts are paid off in full.
You can quickly add up all of your unsecured (credit cards, store cards, gas cards, etc.), and use the above 2.1% calculation to see how much you could save each month by working with a credit counseling agency. If the amount you calculate is something within your budget, you would want to connect with a credit counselor and go through a full consult in order to get an exact monthly payment quote. In many different types of situations, your payment reduction could be lower or slightly higher than the example of 2.1% given.
Getting all the details.
With so many credit counseling agencies nationwide, finding out if you qualify for a debt management plan, and understanding how all of the details apply to you, is a matter of picking up the phone. The only way to get an accurate monthly payment quote is by speaking with a certified counselor at one of the many agencies you have to choose from. If you would like to learn more about this debt relief option right now, you can call 888-317-8770 to speak with a licensed credit counselor.
If you have any questions, comments, or concerns relating to a credit counseling service or how a debt management plan would work for you, post a comment below for feedback.
Continue on with part 2 of counseling: Top Drawbacks to Debt Management Plans
Hello,
I have a few questions. We are currently with a Debt consolidation company. I lost my job last month and my wife just found out we’re expecting our first child. She is high risk and my be put on bed rest for the duration of her pregnancy. At this point we can neither afford to pay the Debt Consolidation company or make minimum payments on the Credit Cards. We have already received notice from some companies advising they are exiting the program because we missed one month of payments currently. Our house is paid off can they put a lien against our home and force us to sell it under Flordia State Laws? I read that we maybe covered under the Homestead? Also I claim HOH which I also heard hey could not garnish our wages per FL law? Any info would be amazing as obviously we don’t want to lose our home!!! Thank you so much!
It sounds like you are working with a nonprofit agency to make the monthly payments. If you stop the DMP you are on, and make no payments, you have time to raise money to settle your credit card bills, and may also want to consider chapter 7 bankruptcy.
List your credit card banks and balances. I can help you estimate what you are up against and your risk profile for being sued.
You are right about the head of household and homestead exemptions. But they are not a plan by themselves. Not when judgments can hold up your families financial goals for so long.
I have high credit balances and it is difficult for me to meet my payments but I pay on time if I wanted to pay out some of my credit cards would my credit card companies cut down on the balances in exchange for a pay out?
You are describing settling your debt for less. Virtually all credit card companies will take less than the balance owed, but not until you are late with payments. And not just a little late. You typically have to be several months late. And with some creditors, the better opportunities won’t be until they send your account off to collection agencies.
Your credit will take a big hit.
Check out this comparison between settling debt and credit counseling.
Hi Michael,
I am interested in a DMP. Please give me your opinion on if it is advisable.
My total credit card debt across 11 cards is -$69,932
My total monthly income is $2956 from work and $521/month child support
My monthly bills total $1900
Cards are as follows
Amex- minimum payment $48 balance $ 2018 Interest rate 17.24% current
BOA- $64 $2891 14.49% current
BOA- $200 $7386 20.24% late 2 weeks
Capital One $303 $10, 196 23.15% current
Chase- $118 $4419 18.49% current
Credit Union $59 $2937 9.99% current
Discover- $185 $9278 14.99% late 3 weeks
Ebates – $243 $8052 24.99% late 10 days
PENFED- $175 $8793 11.99% late 20 days
USAA- $283 $10669 15.5% late 10 days
Wellsfargo $82 $3293 17.15% current
Thank you for your help.
Call 800-939-8357 ext 1 and go through a free consult. At the end of that you will get an exact quote of what your lower monthly payment would be on all of those cards. I am estimating it to be around $1400.
Let me know your thoughts after you complete the consult.
I am trying to find out if you all can work with lending club and avant I am finding most places can’t.
Are you looking to consolidate Avant and Lending Club into a lower monthly payment plan through a credit counselor, or are you looking to settle the balance for less?
Hi, I was wondering what your advice would be for my situation. My total credit card debt is currently $30,963.00. Combined minimum monthly payments is $912. I’ve missed 3 consecutive payments on my Chase account but the other cards I am current on. My take home pay is $1834 a month. Monthly rent is $600, utilities $65, phone bill $38, gas $160, food $150, auto insurance $59. How much would a monthly payment be if I enrolled in a debt management plan? Would I be eligible to file for bankruptcy with this amount of debt considering my income level? Should I try to negotiate a settlement with Chase? If you could please let me know your recommendations for my case I would be grateful. The individual card accounts are as follows:
Chase $10,414 min pymt $384
US Bank $4989 min pymt $144
Citibank $4290 min $97
Bank of Amer $5895 min pymt $111
Amer Express $991 min pymt $35
Discover $1507 min pymt $38
PNC $1966 min pymt $56
PNC credit line $911 min pymt $47
If you work through a credit counseling agency (CCCS) I estimate your monthly payment would be about $650. If your income is stable you should call my hot line and talk to a counselor so you can get an exact to the penny quote. My estimate is based on an average, where the counselor is going to be accessing a system that is tied into to all of your creditors. The call is free at 800-939-8357, press 1 when you hear my voice. That will connect you to an accredited CCCS.
It is difficult to make a recommendation with the little information I have so far. There are reasons to avoid chapter 7, and reasons I could discover why you should jump at filing. You probably pass the means test if you are single and yours is the only household income to consider.
I recommend you go through a process of elimination to determine what your next steps will be. Call and talk to a CCCS company and get a monthly payment quote. Then talk to a bankruptcy attorney about chapter 7. If you want to compare what settling will look like with those other options, call the same hotline and press 2 to ring me.
Michael, who should be answering?
Thanks!
Pressing option 1 after you hear my voice connects to MMI for a free counseling session where you can get a quote for how low your monthly payment would be in a DMP.
Pressing 2 leads to me to talk about settling debt and other creative options.
Pressing 3 connects to bankruptcy professionals to learn more about what that would look like.
Pressing 4 goes to a dedicated student loan counselor.
What do you know about ClearChoice counseling?
Thanks!
Clear Choice Credit does not appear to be a nonprofit credit counseling agency. If you meant to say Clear Point, they are like MMI and about 100 other credit counseling agencies that do the same thing nationally. They all are heavily regulated and offer the same thing for the most part.
Hello Michael, I read some of your posts and found your answers very honest and clear. So I wanted to ask if you thought that a debt management program (through for example consumer credit would be a good option for me). I earn about $130K before taxes and have about $100k in credit card and loan debt. I also have about $390K in student loan debt. I have been paying my debts, but lately (the last year or two) I have been struggling incredibly. I borrowed to consolidate but it never seems to help. I would like to pay and don’t want to get a big hit on my credit score and don’t want to have a 10 year “scarlet letter” on my credit. Do you think that a debt management program would be a good option for me?
PS – my student loans are on an income schedule and since I work for the public sector, they will be forgiven in 4-5 more years of payments.
thank you so much,
Marya
Post a reply with the balances you owe and the interest rate on each account. I can then help you compare the benefits from signing up with a nonprofit credit counseling agency vs using an aggressive debt roll up strategy.
Here you go:
Nordstrom: $2400 (22%)
Chase: $7166 (18.24%)
Chase: $1444 (0% and then 23.24% after October 16)
Discover: $5398 (0% right now, but I am not sure when it will be 25%)
AmExpress: $3818 (20.49%)
Dell: 992 (24.42%)
Crate and Barrell: $600 (22%)
Bloomingdales: $809 (25.49%)
Amazon: $3217 (26.24%)
Citibank: $4359 (16.24%)
BestBuy: $4039 (0 for 2.5 more years)
Paypal: $3394 (not sure I think it’s above 20%)
NIH Federal CU Loan: $16,194 (i think it’s 8%)
LendingClub loan: $14,452 (10.38%)
LendingClub loan: $12,185 (13.25%)
Prosper loan: $6894 (14.97%)
Barclay: $2433 (22%)
TD Bank Loan: about 19000 (5 or 6%)
Thank you very much!
Also my auto lease expires in about 12 months and I would like to lease another vehicle, would this be doable? I would like to keep the car I have right now.
I do think you will benefit a good amount from consolidating those credit cards with a counseling agency. Those interest rates will be dropped by half or more in many cases. The introductory interest rates you are still on with some accounts may have to be handled differently.
Have you gotten an exact consolidated monthly payment quote yet? If not, call the debt relief hotline I have up on the site, 800-939-8357, when you hear my voice press 1. That consult is free and informative. At the end of the process you will get an exact monthly payment amount that will not adjust and allow you to pay off all of those credit card bills in under 60 months.
Can you be more clear about your goals for the car(s)? I read your comment to say you want to purchase the current leased car at the end of the lease and then lease another on top of that next year.
Thank you. I will call tomorrow. The car I would like to return when the lease is up and get another one.
Thanks, I will be in touch!
Hi Michael,
I called the number you listed and it takes me to Money management international. Is this who I should be talking with? Then when I called back there was no answer.
Thanks
Yes, please try the same number and let me know if you have trouble connecting again. I have never had a problem with my toll free hot line service until last week. I may want to switch to a different service.
I am 53 years old and have been working with CCCS for nearly three years and have paid off over $17,000 of $23,000 worth of debt. Since I started with CCCS I have also paid all of my other bills on time. I got married last year and my husband thinks it is time I get a credit card to start rebuilding my credit. I am afraid that I might get turned down if I apply which will hurt my credit. I had 20 years of excellent credit, then lost my job in 2009 during the recession. I lived off of credit cards to pay my bills resulting in huge debt. By 2012 my debt was out of control. I took steps immediately and am back to my usual good consumer ways. What do you think? Should I apply for a credit card? I am getting offers in the mail.) Or should I wait until my credit card debt is completely gone?
It is a good idea to start rebuilding with revolving unsecured accounts as soon as possible after enrolling in a DMP with a CCCS. All of your accounts (though you can sometimes leave one out) get closed when working with CCCS, so you lose that element of your credit history and should look to replace it. One or two accounts is all I would look to get set up.
The problem is that many issuers are not keen on opening accounts for people they can see are still paying on their DMP. You may want to start off with a secured credit card first, like perhaps the Discover account that can later convert to unsecured. After getting a secured card like that, I might look at applying for an unsecured account. Avoid applying for too many if you are turned down.