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Debt Management Through Consumer Credit Counseling

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Consumer Credit Counseling Services (CCCS) do not provide loans but rather restructures a consumer's debt using special channels that are made available only to non-profit Consumer Credit Counseling Services. Most major creditors have hardship programs in place which allows for reduced payments and lower interest, providing that the consumer enrolls in the Debt Management Program, thereby closing all, or most, of their unsecured accounts and placing them in the program. The consumer then makes a fixed monthly consolidated payment directly to the agency, which in turn, disburses the funds to each of the participating creditors according to a prescribed schedule and payment agreement.

Not all creditors offer forbearance, however, and although most do, the forbearance granted can vary dramatically with each creditor. In addition, each creditor has their own policy regarding a minimum acceptable payment. Failing to meet this minimum typically results in no forbearance being granted.

Contrary to how it is often promoted, Consumer Credit Counseling Services typically do not negotiate with creditors. The truth is they merely set up a client's account according to each creditor's hardship policy. For example, if a debtor owes $1,000 to Superior Bank, and that bank's hardship policy requires a minimum payment of 2.2% of the outstanding balance, the agency must set up a payment of $22. If the debtor's regular minimum balance is, say, $40, then there is a reduction in payment. In some cases, however, there is little reduction, and sometimes, it actually results with an increased payment. On the other hand, if the debtor is past due on his regular payments and unable to catch up, the revised payment may reduce the debtor's obligations significantly. This is because enrollment in the program typically sets aside any past due amounts.

The revised payment is usually based on the outstanding balance at the time of enrollment. Currently, there are a few creditors who will accept a payment as low as 1% of the balance —and a few that demand a whopping 5%. The majority of creditors, however, require a payment from 1.5% to 3%, with 2% or 2.2% being most typical. For unknown creditors or those creditors without a hardship program in place, a payment proposal is mailed or faxed by the agency based on industry standards.

It should also be noted that oftentimes creditors will not lower the payment or offer any forbearance on loan accounts. Therefore, the type of debt also plays a significant role.

In essence, how much a debtor's overall monthly payment can be reduced going through Consumer Credit Counseling Services depends entirely on who the creditors are, the type of debt and the amount owed to each creditor. In some cases the savings can be substantial, and in others it may be negligible. The only way to determine this is to analyze the debtor's financial profile.

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