Credit counseling has a low success rate. However, if you look at the concepts and processes behind it, you will be baffled at the reason why this statistic is in place.
As a debt relief program, credit counseling will help consumers get out of debt through a debt management plan. This plan is a lower monthly payment scheme that the counselor will use to negotiate with creditors. The idea is to give you more room in your budget to breathe. Hopefully, that will provide you with enough motivation to complete the program. The counselor will help consolidate your debt so you only send a single monthly payment. This ease will allow you to focus more on growing your income to help increase your debt contributions. And if the consumer is committed to the debt management plan, the creditor may even relent in lowering the interest rate and the waiving of other finance charges.
This seems like a good debt relief program to work with and is quite appealing especially when you find that it will hardly have an effect on your credit score. But why is it suffering from a low success rate?
First of all, those who failed at it sometimes do not have the income to support the debt payment plan. You need a steady income because this debt relief program takes a couple of years to complete. If you are shifting from one job to the other, you may have trouble keeping up with the contributions when you are in between jobs.
Another reason why it probably failed is because people need a bigger reduction on their debts. While credit counselor will convince your creditors to allow a lower monthly payment, you will still end up paying off the whole balance of what you owe. This has to be clear from the start so you do not ruin any expectations that could discourage you and make you give up on the program.
Speaking of expectations, this is another problem that leads to the failure of credit counseling. People sometimes have high expectations in terms of the decrease in their debt balance. You need to understand that making smaller payments mean it will take you long to see a significant change in your debt amount.
There are also people who fail to commit in the program. They start out coming too strong and as time goes on, they lose the motivation to continue.
Another reason why it seems like the debt relief program is failing is because people really quit in the midst of the program because they feel that they can continue on their own. In this scenario, they could still finish paying off what they owe – just not with the credit counseling agency.
One of the benefits of this debt relief program is financial education. The consumer can opt to get budgeting and financial management training while they are enrolled with the agency. This could give them the skills to finish the program on their own – thus saving on the monthly service fee which is usually no more than $50.
Regardless of the reason, one thing’s for sure, consumers should be careful about their debt relief choice. At the very least, they should be concerned about the time and effort that will be wasted if they choose to switch in the midst of a program.