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Credit Counseling
If you aren't disciplined enough to create a workable budget and stick to it,
can't work out a repayment plan with your creditors, or can't keep track of
mounting bills, consider contacting a credit counseling service. Your creditors
may be willing to accept reduced payments if you enter a debt repayment plan
with a reputable organization. In these plans, you deposit money each month with
the credit counseling service. Your deposits are used to pay your creditors
according to a payment schedule developed by the counselor. As part of the
repayment plan, you may have to agree not to apply for-or use-any additional
credit while you're participating in the program.
A successful repayment plan requires you to make regular, timely payments, and
could take 48 months or longer to complete. Ask the credit counseling service
for an estimate of the time it will take to complete the plan. Some credit
counseling services charge little or nothing for managing the plan; others
charge a monthly fee that could add up to a significant charge over time. Some
credit counseling services are funded, in part, by contributions from creditors.
While a debt repayment plan can eliminate much of the stress that comes from
dealing with creditors and overdue bills, it does not mean you can forget about
your debts. You still are responsible for paying any creditors whose debts are
not included in the plan. You are responsible for reviewing monthly statements
from your creditors to make sure your payments have been received. If your
repayment plan depends on your creditors agreeing to lower or eliminate interest
and finance charges, or waive late fees, you are responsible for making sure
these concessions are reflected on your statements.
A debt repayment plan does not erase your credit history. Under the Fair Credit
Reporting Act, accurate information about your accounts can stay on your credit
report for up to seven years. In addition, your creditors will continue to
report information about accounts that are handled through a debt repayment
plan. For example, creditors may report that an account is in financial
counseling, that payments may have been late or missed altogether, or that there
are write-offs or other concessions. A demonstrated pattern of timely payments
will help you obtain credit in the future.
Auto and Home Loans: Debt repayment plans usually cover unsecured debt. Your
auto and home loan, which are considered secured debt, may not be included. You
must continue to make payments to these creditors directly.
Most automobile financing agreements allow a creditor to repossess your car any
time you're in default. No notice is required. If your car is repossessed, you
may have to pay the full balance due on the loan, as well as towing and storage
costs, to get it back. If you can't do this, the creditor may sell the car. If
you see default approaching, you may be better off selling the car yourself and
paying off the debt: You would avoid the added costs of repossession and a
negative entry on your credit report.
If you fall behind on your mortgage, contact your lender immediately to avoid
foreclosure. Most lenders are willing to work with you if they believe you're
acting in good faith and the situation is temporary. Some lenders may reduce or
suspend your payments for a short time. When you resume regular payments,
though, you may have to pay an additional amount toward the past due total.
Other lenders may agree to change the terms of the mortgage by extending the
repayment period to reduce the monthly debt. Ask whether additional fees would
be assessed for these changes, and calculate how much they total in the long
term.
If you and your lender cannot work out a plan, contact a housing counseling
agency. Some agencies limit their counseling services to homeowners with FHA
mortgages, but many offer free help to any homeowner who's having trouble making
mortgage payments. Call the local office of the Department of Housing and Urban
Development or the housing authority in your state, city, or county for help in
finding a housing counseling agency near you.
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