How Consolidated Credit Counseling Works

Consolidated credit counseling is a service given to people encumbered with several loans and the primary technique is to convert them into one debt that has a lower interest rate.  While the resulting loan may have a longer term or duration, the amount that will have to be paid every month will be lower than the sum of the monthly payments of the original debts.  Aside from the lower monthly payment, which makes it much easier to repay the loan, another benefit of these loans obtained through consolidated credit counseling is that you only need to think of one payment and one deadline as opposed to the different due dates that you have to consider with the various loans.  However, it is important to be careful about the consolidated loan because it usually requires a collateral such as your home.  If this is the case, you could lose your home in the event that you can no longer come up with the monthly payments and you default on your loan.

These consolidated credit counseling companies can also offer the vital service of negotiating with your creditors, especially the providers of credit cards, so that they will agree to forgiving a substantial portion of the outstanding amount that is due.  This amazing feat is actually possible because creditors are aware that when the borrower successfully files for bankruptcy, they would stand to gain nothing.  However, some corrupt individuals and companies are taking advantage of this trend to make attractive promises to borrowers who are saddled with large amounts of debt.  Some of them may even ask for an upfront fee that could be as high as $3,000.  And a number of these companies and individuals have no intention to really provide the service that they are offering but instead they will soon vanish with the money that they have collected.

Another unwanted effect of using the services of consolidated credit counseling companies is the fact that it could affect your credit rating.  Some lenders report debtors who have negotiated settlements through the help of these companies as delinquent or late, which brings down their credit scores.  Fortunately, there are also lenders who refrain from this practice and simply indicate in the borrowers’ reports that they are under credit counseling.  Moreover, credit bureaus no longer take into consideration the report that the borrower is undergoing credit counseling when computing credit scores.  Thus, the possibility that your credit score will be affected will depend on your particular lender because a number of them do have the practice of reporting you as delinquent or late even after they have agreed to settle. More information can be found at http://thedebtanalyst.com