When choosing a credit counseling firm or individual agent, it is a good idea – as it always is when entrusting your finances to others – to verify that they are a trustworthy institution. Making sure that the credit counselor is a member of the National Foundation for Credit Counseling, a nonprofit association of certified credit counselors, is a good place to start.
One of the first steps a credit counselor takes is to look over your credit report. Many people with less-than-perfect credit ratings take advantage of credit counseling services to lower the high interest rates that often come with flawed credit: others have perfectly good credit ratings and want to prevent losing this status by letting mounting bills get the better of them. Either way, an examination of your credit report lets your credit counselor see your strengths and weaknesses as a borrower, how many lines of credit you currently have open, and any problematic or high-interest loans that should be addressed and eliminated right away, among other things. If you want to see your credit rating for yourself ahead of time, you can do so through several convenient Internet sites. TransUnion (transunion.com), Equifax (equifax.com), and Experian (experian.com) are the three most commonly used national credit bureaus, and for a small fee you can obtain your credit report from each venue online. Some people find it useful to acquire credit reports from all three bureaus, as each may have collected different financial information on your credit history and the bureaus do not share their information with one another.
After examining your credit report, your credit counselor will have a better idea of how to make repaying your loans more comfortable and efficient for you. In order to accomplish this for their clients, many credit counseling businesses specialize in debt consolidation. This involves consolidating most or all of your credit or loan payments into a single periodic payment, which is typically lower than the sum of your payments previous to consolidation due to reduced interest. Consolidating your payments into a single monthly payment alone can go a long way towards helping you pay off your debts. Knowing exactly what is owed each month, and when this single amount is due, is much easier to plan and budget for than several different monthly payments of different amounts due at different times can be.
While you may be able to rearrange your payment schedules with your various creditors so that they are all due at the same time every month, you will need to go through a third party – in this case, credit counseling – in order to have your interest rates or payments lowered. Credit counselors generally first go after the lines of credit you have that carry the highest interest rates, acting as insurance to your creditors that your payments will indeed be met each month – thus lowering your interest rates. Some creditors, simply by virtue of your “representation” by a credit counselor, will happily lower your interest rate; others may require demonstrations of your good financial practices, and will lower your interest after a few months of working with a credit counselor; and still others may not budge at all. Hopefully, your credit counselor will have lowered other interest rates enough, however, that your more stubborn creditors won’t matter quite so much.
By Rachel Campbell