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Debt Management Through Consumer Credit Counseling

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You may be asking yourself, "Can I get a lower payment going through a different consumer credit counseling agency." It all depends on which agencies you apply with, their policies, and whether or not reduced interest and other benefits are of concern to you.

Remember, major creditors have minimum payment requirements. In the above scenario Superior Bank required a minimum payment of 2.2%. But their policy may also stipulate that should that minimum be met, they will agree to lower their interest rate to 6%, to stop late fees and to re-age the account, thus bringing the account current. Failing to meet the minimum payment will result in none of these benefits being provided. And we have found that most creditors will NOT deviate from their policy.

A consumer credit counseling agency could theoretically set up an account below each creditor's minimum payment in order to arrange for a very low payment. But because the payment is very low and there is no adjustment in the interest rate, the accounts will never liquidate. The client would not be served in their best interest.

Another factor depends on how the agency calculates the fixed monthly consolidated payment, the agency's minimum payment and the amount of their monthly service fee. For example, some agencies will simply total the amount of debt being placed in the program and use a set percentage to calculate the fixed monthly consolidated payment. So, if the total amount of debt being placed in the program is $10,000 and the agency's policy is to use a standard percentage rate of 3%, they would compute the fixed monthly consolidated payment as being $300 plus their monthly service fee.

Another approach is to calculate a payment for each creditor based on each creditor's minimum payment requirement. The net result is the lowest acceptable payment possible which still provides for lower interest rates, stopped late fees and re-aging of accounts, whenever these benefits are provided.

The other consideration is the "agency's" minimum payment. If an account has a balance of $300 and the creditor requires a payment of 2%, that would result in a $6 payment. Most agencies, however, do not want to cut checks for only $6 and may have a minimum of, say, $10 or $15.

In most cases, the second approach will result in the lowest payment because in using the first approach the agency must use a percentage high enough to meet each creditor's minimum payment requirement in order to provide full benefits. So while a $10,000 debt balance may result in a computed payment of $300 using the first method, using the second approach, the calculated payment may only be $220. Those agencies using the first approach typically do so simply because it involves less work than calculating each payment individually, given the number of applications they review.

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