Credit Counseling Consolidation

One of the most confusing lures used by for-profit debt relief agencies today is the promise of credit counseling consolidation. They will claim that through one simple program they can not only eliminate your debt but pay it off for less than what you owe. The truth of the matter is, there is no such thing as this program because in reality, it is a meshing of two separate programs offered by reputable agencies to help you manage your debt better.

Defining the Terms

The easiest way to clear up some of the confusion surrounding credit counseling consolidation is to separate and clearly define the terms. Being two separate consumer credit programs, it would help you to understand what each one does, on its own. When offered together, the details may get lost in the mix.

Credit counseling is actually a series of educational seminars that are offered by debt relief agencies to help you to understand some common principles for handling debt. This can include budgeting, shopping around for better interest rates, tips for only taking on credit that you can afford without going over your monthly income, as well as ways to save money while still keeping up with your monthly payments.

Consolidation refers to a debt relief program that offers you the chance to consolidate all of your existing debt into one affordable monthly payment. Basically, a consolidation agent can help you qualify each type of debt you have and help you seek out financing that will repay all of it at a lower payment rate per month, for a longer term of time. This ensures that your debt gets paid, reduces the chance that your credit rating will be ruined, and offers you the chance to save back money over time to rebuild your financial base.

The Effect on Your Credit Rating

Credit counseling will help you understand the importance of paying your bills on time, and the effect that slow or late payments can have on your credit rating. When the reporting agencies calculate your credit score every quarter, any records showing that you have paid any account late, with slow or erratic payments or has gone into collections and charged off will lower your score anywhere from one to ten points, depending on the amount owed, and the time that has elapsed. To avoid major changes in your credit score, a credit counseling program will advise you to pay off the lowest balances first, while keeping current on the rest.

Choosing to use a debt settlement or consolidation program will have an impact on your credit score as well but it will bounce back once the debts have been paid. Credit counseling consolidation programs, no matter how they are given, are designed to put your credit score back to rights, no matter the method. All you need to worry about is getting your debts paid and have the patience required to allow your credit scores to rebound without incurring more debt along the way.