US Financial Management, Inc. | Credit Card Counseling | Credit, Counseling, Debt, Their, Consumers

Credit Card Counseling

The Benefits of Credit Counseling
The benefits you can expect to receive through credit counseling are predetermined interest rate agreements with creditors to reduce your interest rate and minimum payments.

How Credit Counseling Works

The average minimum reduction is 8%. However, some creditors will not go below 20% and some refuse to participate in these programs. All of your credit cards may also be cancelled and you will probably need to pay 100% of the full debt amount, including interest! But there's more. Did you know that your new monthly payment through credit counseling is generally higher than the original minimum payment on your accounts? How can you handle paying a HIGHER monthly payment when you are already struggling to make ends meet? These programs can take about 4 to 7 years to pay off your the creditors. However, statistics show that "79 out of 100 people that enroll in these programs drop out" before they complete them.(1)

ARE CREDIT COUNSELING AGENCIES REALLY NON-PROFIT?
Although they claim "non-profit" status, credit counseling programs work in a similar manner as a collection agency.(2)Credit counselors get paid an average commission of 12-15% of the amount they collect for the creditors. In addition, many typically charge a monthly program fee ranging from $15-$40.(3) The word "non-profit" is nothing more than a filing status for the multi-billion dollar credit counseling industry. In fact many of these "non-profit" counselors employ very high-paid executives.

The History of Credit Counseling

Let’s explore the intended benefits of credit counseling, as opposed to the actual business model. The first credit counseling agencies were reportedly created in the early 1950’s.(4) At this time as the title “credit counseling” suggests, the intended purpose of the program was to give consumers guidance on debt avoidance and repair. This meant educating and giving support to consumers on managing their finances appropriately, as well as giving them a full understanding of how credit cards work and why they shouldn’t be too quick to pull them when at the register. An underlying reason for the debt problem in this country is the behavioral problems consumers have developed when it comes to their finances. Consumers have come to depend on their credit cards for purchases they shouldn’t be making at a certain point in time or shouldn’t be a making at all.

Because many people do not feel a tangible loss when using a credit card, it is difficult to be conscious of spending habits. When using cash to make purchases, consumers are much more aware of their actions. The process of debt management means allocating funds to the appropriate destinations at the proper point in time. This process occurs best when using liquid assets. Payment obligations seem to always be “put off” when using credit cards and unfortunately the consequences are severe and rapid. Because of high interest rates and late fees, consumers can find their debt barreling out of control—seemingly overnight. When using cash, consumers are less likely to purchase items they do not necessarily need. Unfortunately the commercialistic and greed driven society pushes consumers to purchase unneeded goods and use credit to do so.

While society may be to blame for a portion of the debt problem in America, we must look at ourselves when it comes to making decisions. The ultimate final decision always lies in the individual. This is where the idea of credit counseling began, with the notion that if one could gain a better understanding of credit and their finances, they would be able to alter their behavior and make better financial decisions. There was a definite need for a program like this because of the overwhelming amount of Americans that were finding themselves in outrageous debt. Unfortunately, the credit counseling process of educating consumers transitioned from a face-to-face consultation to counseling via telephone, which distanced the consumer from the counselor, in turn lessening the effect of the conveyed message.

As more credit counseling agencies arose, competition was inevitable. This competition led to mass marketing to gain corporate standings and the ultimate transformation of the credit counseling process. A once valiant attempt to actually help consumers manage their finances, avoid debt, as well as all the hardships that come along side debt, had turned into just another industry looking to profit from the unfortunate circumstances of others. At this point in time, the actual counseling aspect of credit counseling has been lost.

The Current Counseling Model

In general, credit counseling currently works in this manner: a consumer submits a single payment to a credit counseling agency, which disburses what they believe to be the appropriate sums of money to their client’s creditors on their client’s behalf. In addition the credit counseling agency works with their client’s creditors to reduce interest rates and other credit card terms. This credit counseling process is supposed to help consumers fix their financial difficulties by removing the interaction between the consumers and creditors, while reducing their interest rates in hopes that the consumer can concentrate on repaying their debt. The problem with this transformed credit counseling process is that the consumer receives no (or minimal) actual counseling, and the agency fails to address their bad habits and inability to escape their debt. Another problem is that the credit counseling agencies reduce the interest rate so minimally, that when you take into account the administrative fees that credit counseling agencies tack on to their client’s payments, the client is not saving a significant amount. Because the savings are insufficient, the drop out rate of credit counseling programs is very high.

Aside from the inefficiencies of the current credit counseling model, there are also those credit counseling agencies abusing their position. This is the focus of the majority of the criticism in the credit counseling industry. Even non-profit credit counseling agencies receive contributions from the creditor known as “fair share.” So, credit counseling agencies are basically a version of a collection agency because they are working for the creditors. So ask yourself, whose interest is your credit counseling agency looking out for? The criticism of these credit counseling agencies abusing their position is good because it helps consumers avoid such agencies, but in the same sense, it dilutes the concern of the underlying problem: the poor business model that credit counseling agencies follow.

WHY IS DEBT NEGOTIATION A SUPERIOR OPTION TO DEBT COUNSELING?

It’s quite simple: debt negotiation reduces your debt. U.S. Financial Management, Inc has built solid relationships with all the top creditors, law firms and collection agencies. Our trademarked MyDebtNegotiation™ program allows us to negotiate our client’s debt, often cutting it in half. By settling our clients amount owed an average amount of 50%,* they finally have an opportunity to catch up on their payments and reduce their debt. Unlike credit counseling, where the consumer still pays the full amount of their debt with just minor relief in the form of an interest break, debt negotiation REDUCES the owed debt amount. Also, credit counseling can take an excess of 7 years to pay off the debt; our debt negotiation program allows our clients to reduce their debt in as little as 18 to 48 months. With debt negotiation, minimizing your debt is now actually an attainable goal. Thousands of dollars in debt can be literally erased from your problems in as little as three years. Imagine how long you have been plagued by harassing phone calls and the burden of figuring out how to make ends meet. It is time to get a fresh start. U.S. Financial Management is there to help.

DISCOVER DEBT NEGOTIATION TODAY!
For your free, no-obligation consultation please complete the form on the right-hand side of the page.

Or Call Toll Free:

1-800-738-5351

Your privacy is important, your personal information is kept confidential.

*These percentages illustrate the average amount saved; Savings vary on an individual basis.

Sources:
(1) Consumer Federation of America
(2) Credit Counseling and Debt Management Plans
(3) "IRS, FTC: Beware credit counselors,” Oct. 2003
(4) National Foundation for Credit Counseling Fact Sheet

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