The statement, "banks only lend money to those who can prove they don't need it," is unfortunately true in many cases. While one of the best methods to control and refinance credit card debt would be a bank loan, a person overwhelmed with credit card debt will have a very difficult time obtaining a debt consolidation loan from a bank. Another option, credit card counseling, can be helpful, but the debtor needs to thoroughly investigate and evaluate any company that offers this service
Non-Profit Credit Counselors
A true non-profit agency is a good place to start when a legitimate credit counseling firm is needed. First, these companies will analyze the situation, attempt to find a fix and counsel the debtor in ways to avoid a recurrence of the problem. These companies, while they may charge a nominal fee to cover expenses, will not require a large down-payment and will absolutely not require a client to make monthly payments directly to their agency. A good non-profit credit counseling concern also may be able to contact lenders and help structure deals for lowered interest rates, lowered payments and reduced late fees. It must be stressed that no credit counseling agency will be able to erase prior negative ratings that were reported to credit bureaus.
For-Profit Debt Counselors
There are two types of these firms. Some are licensed attorneys, who, for a fee, will contact lenders in order to lower payments, penalties and fees. Sometimes lawyers can negotiate an agreement that settles an account for only a percentage of what was originally owed. Lawyers will usually not act as credit counselors as their main focus will be debt reduction.
The most dangerous type of credit counseling company tells consumers to stop paying all credit cards. Then they instruct the client to make those payments directly to their company. When the balance grows to certain amount after a number of months, these companies call creditors and try to settle the debt for less than what is owed. They also take a large percentage of the payments as a service fee. Unfortunately, late fees and negative reports to credit bureaus continue, as these companies rarely contact the debtor's lenders until they have collected a substantial balance from the client.
Consumers should first try and deal with their debt themselves as many creditors have programs that can be beneficial. If that fails, due diligence is in order.
