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Credit Counseling Video #2

 

Debt Settlement Video #3

 

Taking A Look At Debt Settlement Companies

Hi.  I am Nevada Licensed Debt Adjuster Damian Falcone.  In this video we will discuss another common Debt Management Service that is available to you. Today We will look at Credit Counseling Agencies.

This is Get Settled - your source for consumer debt management and credit management information.  As always, for even more information, go to www.falconcreditmanagement.com.

Credit Counseling Agencies should provide a wide-range of services, educational opportunities, and budgeting and repayment plans. These agencies attempt to set up low-interest repayment plans so borrowers can pay off credit card debt over time similar to the length of the single payment made in debt consolidation – normally a few years.  Most agencies receive a large portion of their revenues from your creditors and a smaller portion from up-front fees they collect from you.

The benefits to this technique are:

  1. Credit Counseling agencies provide a simple plan that is easy to understand; and
  2. They are typically a less expensive provider of simple debt restructuring services.

Unfortunately there are a few negative details which are:

First, Credit Counseling agencies typically only work with unsecured debts such as credit card debts – if you are having trouble with your mortgage you would need to go to a different service provider for a Loan Modification.  The main problem with this situation is – Let’s say for example you have $25,000 in credit card debt and you are upside down in your house $150,000 Both service providers should be in communication and agreement on your plan for moving forward. The fact that your upside down on your house changes what your budget or payments should be for your credit card debt.  For Example, You may be offered to completely pay off the $25,000 in credit card debt for 1 $5,000 payment.  You Credit Counselor may correctly tell you if it gets “Charged Off” and sent to collection you will likely have an offer to settle at greater than 50% not 20%... So the credit counselor  thinks it’s a good deal and you do it.  Then your housing counselor suggests you file bankruptcy – you unnecessarily spent $5,000.

Many times this situation is unavoidable and at that point you should perform a risk/reward analysis.  Typically in a situation like our example you have 4 potential outcomes:

  1. You pay the $5,000 and receive an acceptable loan modification on your home;
  2. You don’t pay the $5,000 and don’t receive an acceptable loan modification and decide to file Bankruptcy
  3. You pay the $5,000 and don’t receive an acceptable loan modification and decide to file Bankruptcy and
  4. You don’t pay the $5,000 and then receive an acceptable Loan Modification and end up paying more than $12,500 to settle the cards;

This is never an easy decision but it’s definitely a decision your counselor should be able to help you with.

The second negative detail is The funds credit counseling agencies receive from your creditors known as “Fair Share” These can easily be a conflict of interest since the credit counseling agent negotiating with your creditors receives their paycheck from your creditors.  In the event Bankruptcy is the financially responsible choice for you the agency may be reluctant to give it the necessary attention since it’s not in the interest of your creditors.

And third, the credit bureaus will most likely report – repayment plan which typically will prevent you from being seen as creditworthy from any issuers of unsecured credit.

So in Summation:

  1. Credit Counseling agencies provide a simple plan that is easy to understand; and
  2. Credit Counseling agencies are typically a less expensive provider of simple debt restructuring services.Unfortunately they may not provide all the services you require; they may have an unavoidable conflict based on receiving payment from your creditors and
  3. the relationship will likely have a negative affect on your credit report for the length of the payment agreement which can last for years.

In our next episode we will discuss Debt Settlement Companies.  Until then, I’m Damian Falcone and this is “Get Settled.”

Credit Service Organization License # 3501
Covered Service Provider License # 3379
8430 West Lake Mead Boulevard, Suite 106
Las Vegas, NV 89128
Telephone: 702-489-6575
Fax: 702-489-6576