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What do I do if Credit Counseling Doesn’t Work?

For many Americans, credit counseling (or if you are in Canada, credit counselling), is a great strategy for dealing with overwhelming debt.  Credit counseling is a great solution for dealing with credit card and other high interest debt, because in most cases your credit counselor will negotiate a repayment plan with little or no interest.

But what can you do if you can’t repay your debt through credit counseling, even with little or no interest?

A debt consolidation loan is an option, but that probably only makes sense if you can consolidate your debt over a period of many years, since with a debt consolidation loan you will be paying interest (with credit counseling you pay little or no interest).

If credit counseling and debt consolidation are not possible, you may need to file a Chapter 13 Wage Earner Plan (if you are an American), or a consumer proposal (if you are a Canadian).   These plans are a way to repay some of your debt, while avoiding personal bankruptcy.  (For more information, Canadians should research personal bankruptcy, which for Americans is called Chapter 7 bankruptcy).

There are other alternatives to bankruptcy.  For example, here’s a report on How to Get Out of Debt Fast Without Filing Bankruptcy that offers practical tips on dealing with debt.  You do have options, so begin researching your options today.


What’s the difference between credit counseling and debt consolidation?

This is a very common question, because a credit counseling Debt Management Program may appear to be very similar to debt consolidation. In both cases you have more debt than you can handle, so you enter into a program where you make a monthly payment to repay your debts.

In debt consolidation, you get a loan to repay all of your debts. You now have one monthly payment.

f you enter into a Debt Management Plan, your credit counselor works out payment arrangements with your creditors, and you make one monthly payment to your credit counselor, who then distributes the money to your creditors.

In both cases you make one monthly payment to deal with your debts. There are however two significant differences.

First, you must qualify for a debt consolidation loan based on your income and your credit. You may be required to provide outside security, such as a car or a house, to get the loan. The debt consolidator then lends you the money to repay your debts. With credit counseling there is no credit qualification; it is up to the creditors to accept or reject your plan. You do not need to provide any outside security.

The other significant difference is that you will be paying interest on your debt consolidation loan at the going rate, which may be very high if you have less than perfect credit. With credit counseling, you are paying a reduced interest rate. In many cases there is no interest if you make your payments as agreed.

If you have more debt than you can handle, investigate both debt consolidation loans and credit counseling, and then decide which option is best for you.



Should I Refinance my House, or go to Credit Counseling?

If you have a lot of high interest rate debts, like credit card debt or loans from finance companies, a debt consolidation loan may be an option worth considering.
If you own a house, you could use the equity in your house to get a debt consolidation loan.  The bank or mortgage company lends you money at a low interest rate, since the debt consolidation loan is secured by your house, so it’s low risk, and you use the money to repay your high interest credit cards.
Refinancing your house lowers your interest rate, but it also means that you have “used up” some of the equity in your house.  If you decide to sell your house before the debt consolidation loan is repaid, the amount you get from the sale of your house will be reduced by the amount outstanding on the mortgage.  If the real estate market declines, you get even less for your house.
In addition, if you have a 25 year mortgage, you will be repaying your debt consolidation loan over 25 years.  It will take 25 years before you are out of debt.
Most credit counseling Debt Management Programs last for three or four years, so with credit counseling, you can be out of debt quicker.
If you want to get out of debt quicker, and you can afford the payments, credit counseling is often a better option that refinancing your house through a debt consolidation loan.


Is Debt Consolidation a Good Alternative to Credit Counseling?

Debt consolidation is the process where you borrow money to pay off other debts.  The most common example would be getting a debt consolidation loan at a bank to repay your high interest credit cards.
If the interest rate at the bank is less than the interest rate on your credit cards, you pay less interest each month, which allows you to repay your debts faster.
With a credit counseling Debt Management Program you don’t borrow money; you simply make a settlement with your creditors, and with your credit counselor’s help you pay them off directly.
If you have the ability to borrow, perhaps because you have equity in your house, a debt consolidator may be a good option.  Your credit report will look good, because you paid your debts in full.
However, if you don’t qualify for a debt consolidation loan, then consumer credit counseling may be your best option, since it will give you the financial break you need.
Contact a credit-counselor.htm”>credit counselor for further information.


Debt Consolidation: The Good, The Bad, and the Ugly

When you meet with a credit counselor they will start the consumer credit counseling process by explaining your options for dealing with your debt.  One of the options to consider is debt consolidation.  Here’s what you need to know.

First, the good: a debt consolidation loan is used to combine the payments for many debts into one payment, so you only have one payment to remember each month.  As an added benefit, the interest rate on a debt consolidation loan should be lower than the interest rate you are paying on your credit card debt and other high interest debt you are consolidating.

The bad: you may not be able to afford even the new, lower payments on your debt consolidation loan.  Do a budget first, and don’t agree to anything you can’t afford.

The ugly: there are many debt consolidators that will charge you a fee for doing what you could do yourself, so don’t sign anything until you read it.

Debt consolidation is a great option for many people, but only if you consider your options carefully, and think before you sign anything.

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