Many debtors seek credit counseling for lower interest rates so that they can get relief from the high finance charges they are incurring. Indeed, lower interest rates on credit cards may be the most important benefit that many creditors offer through credit counseling. There are however some additional benefits that are often overlooked.
Pay Off Debt Sooner
The lower finance charges on many accounts allow for a much larger amount of each payment to go toward the actual debt balance. This allows for you to eliminate credit card debt much faster than you typically could on your own. When your finance charges drop by half on one credit card, your principal payments could double, triple or increase by even more, depending on your account. Even a drop of just a few percentage points could potentially double your principal payments.
As your debt balances drop, the finance charges also are smaller, which causes an even higher amount to be applied to debt balances in subsequent months. In most cases, your debt can be eliminated completely within three to five years.
Lower Minimum Payments
Many creditors provide an extra boost to your budget by lowering your minimum payment through a debt management plan. The drop in finance charges can be so substantial in some cases that they can give you a lower monthly payment while still applying higher amounts to your principal balance.
Such drops in the minimum payment can allow you to pay a lower consolidated monthly payment as a part of your debt management plan. A lower payment fits more easily in your budget and can help you keep your payments on-time and consistent from month to month.
Eliminate Late and Over-the-Limit Fees
Participating creditors typically will waive future late and over-the-limit fees once they accept the terms of your debt management plan. With such nuisance fees ranging from $25 to $39 each, the savings can really add up.
They do this by re-aging the account. This means that once your debt management plan is accepted, then they will accept that new low monthly payment each month without requiring that you repay any arrears. If you are a month or more behind, you no longer have to double up on payments just to get caught up. Any fees previously charged will still be a part of your balance, but you would receive no future late or over-the-limit fees once you are approved by the creditor for these benefits.
Halt Collection Calls
Once your accounts are returned to a current status, you will no longer receive any harassing collection calls from credit card issuers. Your accounts will be reported as paying on time as agreed. Some may reflect that you are on a debt management plan.
Credit card companies will not call you to request payment once you have been accepted into a debt management plan and are able to stay current with your payments. As long as you stay current with your payments, then you should get relief from those collection calls.
Benefits provided by creditors are subject to their guidelines. They generally do not change once your plan has been accepted. If you miss payments, then you could lose benefits. Talk to your credit counselor about what benefits you could expect based on your own unique situation.