Consumer Credit Counseling CCCS
Consumer Credit Counseling Services, referred to as CCCS companies, are most commonly known for making, or attempting to make monthly payments to your creditors.
CCCS companies can both be non-profit and for profit.
CCCS companies can also be backed or funded by credit card companies.
The basic concept of these companies is to mail proposals to your creditors, asking the creditors to lower your interest rate for a number of months, inturn lowering the monthly minimum payment to the creditors. What most consumers don't realize, and what most agencies won't disclose, is that this method of program should only be used by consumers who are seeking short term relief. When you sit down and do the math, if you lower your monthly minimums, and make no larger payment than the minimums, you are effectively extending the life of your outstanding debt. So instead of eliminating your debt in 4, 5 or 6 years as these companies promise, you are looking at 7 - 10 years before being debt free. That estimate is based on many variables, the most important being whether or not a creditor will accept the payment plan at the reduced amount and reduced interest rate. If the creditor rejects the proposal, you are right back where you started. Another problem with these companies is that they report to the credit bureaus as third party assistance. This is highly detrimental to your credit for years to come and any future lender may consider you a credit risk because of it.
Debt Consolidation Loan
A debt consolidation loan is a loan that you can borrow to help repay your other loans. Debt consolidation loans help you organize your debts by consolidating them into one monthly payment, oftentimes at a lower interest rate. To get a debt consolidation loan, you must typically have a good credit score, the ability to repay the loan and you usually need to have equity in your home. You want to think about pursuing this debt relief option only when you can afford to repay the loan and understand the consequences of converting unsecured debt to secured debt. People often choose debt consolidation loans to secure a lower or fixed interest rate and because they want help organizing their debts.
Remember that a debt consolidation loan helps you to reorganize your debts to make it easier to pay them off. It does not relieve you of your debt burdens.
Here are some more facts about debt consolidation:
Payback can take as long as 10 to 20 years depending on debt balance and your ability to pay.
Remember, this is a loan, and it is still provided by a bank. So the bank is going to want to check your credit and your debt to income ratio. When you carry a lot of unsecured debt you may be considered a credit risk to any potential lender. Even if you have a good payment history and have been current with all of your bills, a lender may not consider you to be credit worthy simply because of your debt to income ratio. Even if you do manage to get approved for one of these, it will not be as helpful as many people think. First of all you are simply replacing your debts with an equal amount of debt and not improving your debt to income ratio at all. Second they tend to create a false sense of security and most people just end up running up their credit cards again. This will put you in a worse situation than you were before. Not only would you owe the credit cards again, but now you would have the loan on top of it that is secured by your home. It is very easy to become overwhelmed by credit card debt and getting a loan to replace your debt with another debt simply does not make much sense.
Bankruptcy
Bankruptcy is a last resort.
Over the past few years, changes in the Bankruptcy law have tightened the requirements and minimums that consumers must meet before filing bankruptcy. Specifically, and read this carefully as it is extremely important, consumers must now attend Consumer Credit Counseling Services before qualifying for Bankruptcy. Yes, you read that correctly. The new bankruptcy laws stipulate that you must utilize CCCS first, before you will qualify for bankruptcy, and even if you do you will end up paying back anywhere from 50% - 100% of your debt anyway. Plus it has one of the most negative impacts on your credit possible. It will remain on your credit report for a minimum of 7 – 10 years as a major infraction. Many credit or Job applications, including mortgages or car loans, will ask if you have ever declared bankruptcy in your lifetime. Even after the ten years it takes to be removed from your credit report it can have an adverse affect on you.
Because it is a matter of public record, bankruptcy can haunt you for the rest of your life, as any background check can show that you declared bankruptcy at one time.
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