Once you sign up for the services of a consumer credit counseling agency, your debt level would be evaluated by a professional credit counselor. Subsequently, a repayment plan is worked out on the basis of your income and debt level. They would negotiate with your creditors to reduce your interest rates and establish a debt management plan that would help you get out of debt.
How does consumer credit counseling work?
While setting up a debt management plan, your financial situation is comprehensively assessed by the credit counselors. Given below are the factors that are primarily taken into consideration:
- Number of credit accounts you have
- The outstanding balances of those accounts
- The interest rates
- Minimum monthly payments
- Delinquent accounts (if any)
The credit counselor also takes into account how much you earn each month and how much you spend. Taking all these factors into consideration, a debt management plan (DMP) is created to pay off your bills. Every one of your creditors receives this suggested plan for acceptance purposes.
As soon as they agree to the suggested debt management plan, you need to start making payments to the consumer credit counseling agency. As per the DMP, this payment is allocated to your creditors. When you enter a DMP, your credit accounts are usually frozen so that you don’t run up new balances.
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