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Credit Counseling Service 101

What Is A Debt Repayment Plan?

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Credit counselors often will work out debt repayment plans with your creditors. Under these plans, your creditors usually agree:

  • To reduce the rate of interest.
  • To waive or reduce penalties.
  • To permit you to repay your debt according to a payment schedule which the counselor develops with your input. You deposit money each month with the credit-counseling agency. The agency then pays your creditors.

To stay in the plan, you can't use any of the credit cards that you put into the plan. If you have a credit card on which you can afford to make the payments as they currently exist, consider keeping it out of the plan. This will help you maintain your credit rating and give you access to funds in an emergency.

If you have more than one card that you could keep out of the plan, pick the one that has or on which you can get credit insurance.

Debt repayment plans could worsen your credit rating. Creditors might report your account as being in financial counseling. Also, any payments you missed or made late less than seven years ago will remain in your file-even after you've started the plan.

In addition to being paid by the creditors, some agencies charge you for developing and managing the plan. The fee will often be payable monthly, based on the number of creditors in the plan. This cost might be more than offset by the lower interest rates and removal of late or over-the-limit fees that the agencies may be able to negotiate. However, keep in mind that there are agencies which don't charge for this service.

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