HOW CREDIT COUNSELORS WORK

Category: Finance, Credit.

The average American is a mere three paychecks away from facing huge, potentially devastating financial difficulty.

But just how the credit counseling business works is a mystery to most consumers. Each year, more than a million Americans turn to credit counselors to try to help themselves regain control of their financial burdens. What s involved when you hire a credit counselor? It may come as a bit of a shock, but the first thing you need to understand is that consumer credit counselors don t work for YOU! HOW CREDIT COUNSELORS WORK. That s one reason their ads on television, and in your, radio email box shout, "Our services cost you nothing! " However, any business needs to derive income from somewhere, so if they re not charging you, who does pay them? Here s how it works: Regardless of what their commercials would have you believe, credit counselors don t renegotiate the overall amount of your debt- -that is, the total principal balance you owe to your creditors.

In truth, they work for the lenders. Instead, they negotiate with the various lenders to decrease your interest rates. A credit counselor will contact the cardholder and negotiate a lower interest rate- -sometimes as much as half the original rate. For instance, let s say that you re paying somewhere around 18 percent on the charge card you want help with( some stores still charge as much as 21 percent) . That s the good news. That means, as is the case with any credit card payment, it will be well worth your while to pay a little more than the minimum each month, in order to whittle down your principal. The not- so- good news is that your minimum payments will still be based on a 90/ 10 split, meaning that 90 percent of your monthly payment will still go toward paying interest on the card.

It will save you significant amounts of money in the long run. The first reason is because they know that it s better to get something, which they ll do if you continue to pay them, even at a reduced interest rate, than to risk having you default on the entire amount. But how can credit card companies continue to make money by cutting interest rates in half, and what do they have to gain by doing so? The second reason is because, even at the reduced rate, the lender is still making a healthy profit. They make huge amounts of profit. ) Credit counselors CAN save you money, there s no doubt about that. They have borrowed that money at a significantly lower rate- -sometimes as much as 66 percent less than the rate they ll be charging you. (That s why the financial institutions have big buildings. But don t be fooled into thinking that they work for YOU, because they don t.

That s why you don t pay for credit counseling services. In the end, credit card companies love credit counselors, because the counselors truly work for them. The credit card companies are happy to pay them for you. Fisher Copyright� Jeanette J.

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