Can Credit Counseling Help Prevent Foreclosure?

The process of foreclosure is a downward spiral. It starts with a loan that might be a little more than you can comfortably afford. Then something happens – Your income drops, your interest rate goes up, you lose a big client – Then all of a sudden the snowball starts rolling. Pretty soon you’re far behind on payments and you’re staring at the possibility of foreclosure.

The key in this situation is to break the cycle as quickly as possible. And breaking the cycle isn’t something you can do on your own because you’re part of that cycle. Having an outsider who’s experienced in dealing with foreclosures, financial planning and credit is crucial.

Of course, there are different kinds of professionals you might try to work with. You might try to work with a short sale negotiator. You might try to work with a financial planner or CPA. Alternatively, you can work with a credit counselor.

How might a credit counselor help you get out of your foreclosure?

Begin by Helping You With Your Budgets

One of the most important things you need to negotiate your way out of a foreclosure is cash flow. If you’re going to try and renegotiate your payments, you need to be able to demonstrate that you have the cash flow to make the payments.

A good credit counselor can help you boost your monthly cash flow not by increasing your income, but by helping you set better budgets. Good budgets could help you reduce your monthly expenses by as much as 20%. That’s a significant amount of money that can go toward resolving your financial troubles.

Negotiate With Creditors

Creditors know that if you choose to default, file for foreclosure and/or file for bankruptcy, they’re going to get nothing. They also know that if you’re facing foreclosure, there’s a good chance you’ll just default on the rest of your debt.

After all, why wouldn’t you? The foreclosure is going to destroy your credit rating in the short term. Defaulting on your revolving credit and loans isn’t going to do any more damage.

That’s why creditors are often willing to negotiate. However, creditors tend to be quite inflexible towards individuals. They don’t want people calling them up asking for discounts on their principal balance all the time. When they do negotiate, they’ll try to get as good a deal for their company as possible – Which comes at your expense.

With a credit counselor negotiating on your behalf, however, you’ll generally get as good a deal as you could ask for with that creditor. They know that credit counselors know that if they don’t offer a good deal, they’ll have to sell the loan to collections for pennies on the dollar. So when creditors talk to credit counselors, the end result is usually you save more money.

Sometimes They’ll Even Negotiate With Your Mortgage Company

Sometimes your credit counselor will even negotiate with your mortgage company for you. It’s not something that happens as a rule of thumb, but it can and does happen.

Negotiating a mortgage that’s near foreclosure is tricky business. Unlike credit card lenders, mortgage companies are often slow to respond. Deals need to go through layers of approval and stacks of paperwork before they can happen.

Nevertheless, having a credit counselor on your side can help speed things along as well as help you get a better deal. If your foreclosure is dangerously close to happening, a credit counseling company can step in, intervene and help buy some time for you to try and sort things out.

For-Profit vs. Non-Profit Credit Counselors

There are two types of credit counselors: For-profit and non-profit. For-profit counselors will naturally try and take as much of a cut of the money they save as possible. They may ask for money upfront, or they may simply bundle up your loans and add a hefty fee.

Non-profit companies, on the other hand, understand your troubles and are primarily there to help. They have committed individuals who stand with you and fight for you. They still take a small fee, but only enough to keep the company running.

When in doubt, work with a non-profit credit counselor. They’re much more likely to have your best interests at heart.