How Does Credit Counseling Work?

Credit counseling was created by credit card companies in 1951. The purpose of credit counseling was to provide debtors with an advocate that would facilitate their repayment to their credit card companies.

In short, creditors know that you need some help sometimes. They just don’t want to be the only one to lower your payments and reduce your interest rates. After all, why should their competitors continue to charge full price if they are willing to give you a break?

Credit counseling combines the financial education and budget counseling provided by financial counselors with the benefits and structure of a debt management program. The result is a tailored solution to help you, the debtor be able to afford your monthly credit card payments while being able to realistically repay the debt within a three to five year period.

To see how this works, imagine how much of your minimum payment actually goes towards the principal balance. Out of a $30 minimum payment, $20 or more can be due in finance charges, leaving about ten bucks to go towards reducing your balance.

That same account may reduce your monthly payment to around $24 through a debt management program, thereby making it easier for you to pay. At the same time, since credit card issuers frequently reduce interest when you are on the program, your finance charges might drop to $8, freeing up $16 to go towards the principal. So even with a lower payment, much more of each payment goes towards reducing the balance. The longer you are on the program, the lower your finance charges and higher your principal payments.

While most major credit card issuers participate in debt management programs, not all creditors do. For example, if you allow an account to go into default, the lender may transfer the account to a collection agency. Collection agencies do not provide benefits through credit counseling. If you are behind on your payments, it is important to seek assistance before the accounts charge off.

The benefits of credit counseling are real. Remember that your card companies are not evil. They are simply trying to maximize profits. Credit counseling is a part of that plan, since your creditors must help you avoid default if they want to protect their bottom line.

Kenneth Long
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Kenneth Long

President at Debtors Unite
Kenneth Long is President of Debtors Unite, Inc. as well as President and Vice Chairman for Vision Credit Education, Inc. He served as a regional coordinator for the North Carolina Saves campaign. Long co-founded the Wake EITC Coalition along with Family Resource Center of Raleigh.

Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.

Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.

In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.

Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!

Favorite quote:

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."

Thomas Jefferson
Kenneth Long
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