Have you noticed all the advertising aimed at consumers with credit problems? These companies offer to provide a range of goods and services, but it’s up to you to know what is legitimate when it comes to credit — and there are plenty of offers out there that are not!
If your credit problems are out of hand, you can get help getting back on track. Credit counseling services are available from many different organizations. Services may include help with budgeting and setting financial goals, home ownership counseling and education, and debt management plans.
A debt management plan with a reputable organization will generally reduce your monthly payment and get you out of debt in less time than it would take outside such a plan. In these plans, you deposit money each month with the credit counseling service. The service uses your deposits to pay your unsecured creditors according to the payment schedule developed by the counselor. As part of the repayment plan, you generally must agree not to apply for or use any additional credit while you are participating in the program.
Some services charge little or nothing for managing the plan; others charge a monthly fee that could add up to a significant amount over time. Some credit counseling services are funded, in part, by contributions from creditors and are essentially friendly collection agencies working on behalf of creditors to collect more than they would likely receive from bankruptcy or default.
If you are behind to the point where your credit report gets worse with each new month, a debt repayment plan is the first step toward improving your credit. If, on the other hand, you have too much debt, but have never been late with a payment, entering into a debt repayment plan may have an immediate negative effect on your credit score.
Your creditors will continue to report information about accounts that are handled through a debt repayment plan. For example, creditors may report that an account is in financial counseling, that you have made late payments or have missed them altogether, or that there are write-offs or other concessions.
Instead, you might want to work out a repayment plan on your own, using Power Pay (powerpay.org) or another bill payment method. Successful completion of a debt repayment plan does not erase your credit history. Under the Fair Credit Reporting Act, accurate information about your accounts will stay on your credit report for seven years. However, making consistent, timely payments will help you obtain credit in the future.
Questions??? Call me in Columbus at 706.653.4200.
By Joanne S. Cavis, CFCS
UGA Cooperative Extension
Family and Consumer Sciences information to inspire you to save money while you engage in Life-Long-Learning . . .