Step 2 - Develop a Cash Flow Engine

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Module 7: Credit Counseling Tool

The first tool to develop a positive cash flow is called traditional credit counseling. Under traditional credit counseling you make a monthly payment to the credit counseling agency. The credit counseling agency then divides the payment and sends it out to each of your creditors. Most of these agencies are nonprofit, but there’s now even a group of for-profit credit counseling agencies.

Because they’re designed to help you get out of debt, all of them work together with the creditors to give you special terms. The terms are all identical for all counselng agencies, so don’t fall in the trap of shopping for this service. You will end up with the counselor that lowballs your payment and then after you’re under contract they will explain why the payment needs to be what the legitimate agency quoted in the first place. Work with an organization you trust and has the integrity to at least list their address on their website.

The key factor is that you make one single payment for all cards, so you don’t have any issues of three or four different due dates and missing your due dates and hitting a $30 late fee every now and then. Those late fees and overlimit fees don’t do anything for you other than just give the credit card company free money that doesn’t reduce your balance a penny. So you don’t have to worry about any of those particular charges hitting you.

The other thing is that by the agreements, when you are in traditional credit counseling, there will be no overlimit fees. A lot of your cards might be maxed out, and if they’re maxed out it’s very easy for you to dribble into the over limit category by not making your full monthly payment. You get dinged for another $30-$50 per month. So it could be very easy for you if you’ve maxed a card out, to not only get a $20 or $30 late fee, but also another $20 or $30 over limit fee and all of a sudden $60 of your payment is just gets flushed right down the toilet before it even starts paying the finance charges. Then you’ve got the finance charges, and there’s hardly anything left to pay on the principal. You’re just stuck for another month continuing like that and making NO progress.

So some advantages of traditional credit counseling is NO over limit fees and NO late fees. The real kicker is that most of the credit card companies will reduce interest rates down in the 8 to12% range depending on which credit card you have. The advantage is that most of your payment every month is going to the principal balance. A small amount of it is going toward finance charges. Without traditional credit counseling almost all of your payment is going to finance charges and a very, very small amount is going to the actual principal.

The traditional credit counseling program takes about five years to complete. The good news is that if you’re on credit counseling and you get another job or get a promotion you can actually increase your payments and get out of debt even more quickly since there is no penalty to increase payments. However there is a penalty if you skip a payment or if you short pay a payment. They are very, very strict and you will get dropped from the program if you don’t have a steady monthly payment stream. At the point where you are dropped due to unsteady payments you’re forced to move into the next tool. So, you need to be able to make sure you can commit to the payment and stick with it.

New Success Path has two NON-PROFIT recommended providers. The first is A Safe Harbour Credit Management, and the second is Community Credit Counseling Services. Both of these organizations will provide you honest advice about ALL of your options depending on your state of residence.

Many organizations have creditors on their Board of Directors and many of these organizations are members of a creditor influenced Foundation. They will avoid suggesting bankruptcy or settlement at all. So really, the only thing you’re going to get is what they have to sell which is a debt management program. The two providers mentioned in the earlier paragraph are organizations that have counselors with the exempt purpose of providing several options. They actually discuss ALL of your options and not just the particular option they are offering.