Credit Counseling Debt Solutions and Minimizing Your Chance of Failure

Posted by: Shawn Stack on 12/06/2011

If you’ve done much research on debt solutions, you know that credit counseling approaches can fail, often leaving debtors worse off than when they started.  Although there are no guarantees here, there are a few things you can do to try to ensure your success if you opt to enroll in one of these programs.

First, you need to stay involved.   Communication with the appropriate people within your creditor’s collection structure is the key to success.  The easiest thing for you to do is to turn everything over to the counselor and let them handle it.  Don’t do this.  That’s how people fail.  You need to know how your counselor proposes to make initial contact with your creditors to get their agreement and then you need to follow up to ensure it’s been done.

It may seem hard to believe but some of these companies simply send out letters to your creditors’ billing addresses informing them you’re in the program and they’ll be hearing from them with settlement offers.  Some don’t even make any attempt to ensure the letter gets to the right department.  You need to follow up to ensure every one of your creditors knows you are in a plan and they agree to it. 

Timing is another enemy of these plans.  You might think that the $500 or $300 a month you’ve agreed to pay the counselor is going directly to your creditors but it’s not.  It’s going into an escrow account and when you have enough cash in there the counselor begins offering settlements.  So when a credit counselor tells you settlement offers will be forthcoming you need to ask one question.  When?

You need to know how long it will be before your counselor starts paying off the creditors.  And you’ll need to know who gets paid first.  The more unsecured creditors you have, the greater amount of time some of them will have to wait before they see any money.  And some of them will not wait.

Finally, some credit counselors first ensure you have enough money in the account to cover their commissions before they make any offers.  Stay away from these people.  Look for a counselor that rolls their commission into the total settlement amount and takes a monthly cut just as the creditors do.