Credit Counseling
Did you know the typical American is less than 3 or 4 paydays away from what could prove to be a serious financial problem? Over a million people a year seek the help of credit counselors in an effort to take control of their financial situation.
Credit counselors work, not for you, but for the lenders, or most obviously, the credit card companies. It does not matter what you read or hear, especially from a credit counseling company's advertisements, but the bottom line is they typically renegotiate the interest rates on your cards, not the balance (principal) owing. If you're at a 25% interest rate, they will contact the credit card companies on your behalf and negotiate that rate to 14.5%, as an example.
This in no way affects how your payments are formulated. What this means is if you are required to pay 4% of your balance each month (this amount varies), you will still be required to pay 4% of your balance. The interest rate will be lower, so fortunately a little more of your payment will now go towards your principle; however, it's still going to take an extremely long time to pay off those cards if you continue to simply make the minimum payments.
Additionally, if you have balances on all your cards of $20,000 before hiring a credit counseling firm, when they're done guess what your credit card balances will be? That's right, $20,000. You will just see your payments as a whole go down each month. That's not necessarily bad as this might allow you to be more comfortable with your payments and prevent you from being one of the people we mentioned above who is only a few paychecks away from disaster. Obviously this will also result in paying a lot less for those cards in the long run.
Another obvious point is this is not 'getting out of debt', or 'debt relief' in any way.
To reduce your debt more quickly after credit counseling you are going to need to pay some extra, as much as you can, each month. But if you just negotiated a new lower rate because you were close to the edge financially, how are you going to pay more? You're going to be in the same boat as you were before counseling.
Creditors love credit counseling companies and in fact they typically pay for their services, for you. Why would this be? It's easy, they are mitigating their risk of loss by making it a little easier for you to pay, and thus easier for themselves to keep stringing you along. Essentially they've reduced the risk of you defaulting on the entire amount and are thus more likely to continue to get their money back. Or, more precisely, continue to receive what is still an enormous interest payment for the amount of principle you owe.
Don't forget, if you maxed-out a card, and have been paying the minimum payment for about 3 years, you have actually already paid them back enough money to cover the principal; they're just receiving free money from you after that.