Credit Counseling Services Phoenix AZ

Credit counseling, also called “debt counseling,” is a service provided by organizations that offer professional counseling for consumers in need of assistance in the areas of debt repayment, debt management, and money management. Credit counseling is also a requirement that must be met prior to filing chapter 7 or chapter 13. The types of debt that credit counseling agencies may assist you with include credit cards, personal loans, home loans, car loans and student loans. Credit counseling agencies also assist with utility bill repayment and tax debt.

Getting Started with a Credit Counseling Agency

Credit counseling agencies will require certain documentation to begin the process, so it is important to organize your records before visiting an agency. The credit counseling agency will ask for credit card statements, copies of utility bills, mortgage payment statements or your rental amount/lease. The agency will also expect you to bring a record of spending or a budget that should include household expenses and any miscellaneous expenses. This documentation is needed in order for the credit counselor to create a realistic budget and debt repayment plan.

Benefits of Credit Counseling

A major benefit to credit counseling is that the credit counselor will handle all lenders, collection agencies, and credit card companies for you. This helps to eliminate the stress associated with collection agency and creditor phone calls. Your credit counselor will negotiate a repayment plan that may significantly lower your monthly payments and interest rates.

You may opt to send monthly payments to the credit counseling agency (by check) or you may authorize a monthly electronic funds transfer from your bank account. Depending on the credit counseling agency, they may offer an option called “debt management system.” If you opt for a debt management system, you will pay the credit counseling agency a lump sum. Out of that lump sum, payments will be made on your behalf. This system can be used as a safeguard against skipped or late payments, which can save money on interest, fees, and any penalties associated with the debt.

An additional benefit to credit counseling is, it can educate you on how to better manage your finances and it will eventually help to minimize or prevent future debt.

Disadvantages of Credit Counseling and Protecting Yourself

While there are advantages to credit counseling, there are also disadvantages. Credit counseling could have a negative effect on your credit, initially. In some cases lenders, specifically mortgage lenders, may not want to extend credit to an individual that may be in the process of completing a credit counseling program. Fortunately, credit-counseling notations will be dropped from your credit report, roughly one month after the credit counseling program is complete.

Another disadvantage to credit counseling is the potential for fraud. This means that in some cases a credit counseling ...