Credit counseling: Guide to reduce your debt burden

Credit counseling service, popularly known as debt counseling service in UK, helps you to find out ways to repay your existing debts and manage any new line of credit you are about to opt for. Credit counseling not only helps you to manage your finance effectively but also helps you to budget your income. Through credit counseling the debtors can also learn the basis of credit and the ways to built up an outstanding credit score. Credit counseling is basically looking at your present financial situation by a certified credit counselor, where the counselor analysis you present income and outstanding debts and budget your expenditures accordingly so that you can repay off the outstanding debts through repayment plans from your present source of income.

You should go for credit counseling if you have already missed some of the payments on existing debts or you are about to file a bankruptcy. It has been made mandatory by the bankruptcy law of 2005 that you should go for credit counseling service within 180 days of filing bankruptcy. Even if you are regular with you debt repayments, you can consult a professional credit counselor if you are afraid of falling behind your payments.

When you sign up for a credit counseling service, the counselors negotiate with your creditors for reduction in interest rates and waiver of late fees so that the monthly payments on your outstanding debt is reduced. Credit counseling also helps you to avoid bankruptcy and consolidate all your individual debts into single monthly payments so that you can keep track of your payments. There are credit counseling agencies that offer free services and some that offer services by charging a nominal monthly fee. The monthly fee however, cannot exceed 20% of the monthly payments the debtor is making towards the debt. Moreover, these counseling agencies receive a share of the money you pay to the creditor which is known as fair share.

Once you sign up for credit counseling service, your credit report will show that you are paying off the debt under credit counseling service. The FICO scoring model do not take into account credit counseling information while calculating credit score and so it will not affect your score. The statement that you are repaying under credit counseling service will stay in your report till the time you repay off the debt in full. Mostly, the counselors design the program in such a way so as to make you debt free in a 2 to 4 year time period. If you can’t keep up with your credit card payments, a debt settlement service may be able to help you avoid bankruptcy.

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