Credit counseling teaches people about credit, managing your money, managing debt, and using your budget efficiently.
The majority of credit counseling companies and programs aim to assist debtors in avoiding bankruptcy should they have any difficulty repaying their debts.
According to Consumer Credit, Americans seeking financial counseling or budgeting help have more than $20,000 in unsecured credit card balances on average.
Settling so much debt by yourself may seem like a daunting task.
As such, counseling agencies may negotiate on the borrower’s behalf with creditors to decrease their credit card payment’s loan interest and get rid of the late fees of the debt.
As the Consumer Financial Protection Bureau (CFPB) states, most credit counseling firms are non-profit, while there are for-profit credit counselors.
- Some credit counseling businesses impose extraordinarily high costs that you may not know of.
- By working together with credit counseling, you let them control your debt and manage your money more efficiently but by them a fee.
- Credit counseling services help you in developing a debt management plan and take care of your payments and everything to make sure you come out of debt as soon as possible.
Credit Counsellng Services
There are several non-profit credit counseling organizations that provide services face-to-face, on the internet, and over the phone.
Non-profit credit counseling programs are available at many colleges, military posts, credit unions, authorities for housing, and US Cooperative Extension Service locations.
Financial institutions in your local area and organizations for consumer protection are also good sources of information.
However, keep in mind that if an organization is non-profit, this doesn’t guarantee free, inexpensive, or legal service.
Some credit counseling businesses impose extraordinarily high costs that they may disguise.
Other credit counseling organizations may encourage consumers to donate to their non-profit organizations.
When contemplating any credit counseling program or searching for a credit counseling organization, it’s critical to understand what costs, if any, there could be and why these costs are there. 1
How Does Credit Counseling Works?
Credit counseling firms with good reputations hire educated and qualified personnel.
These counselors can meet with customers to assist them in developing a specific strategy to address their credit concerns.
The first session for credit counseling generally takes an hour, with the option of further sessions as a follow-up.
A professional firm should provide free information and details regarding their services without letting their potential clients provide many specifics about their current situation.
Credit counseling services and organizations generally assist you in developing a plan for your debt management, also known as DMP.
This plan lets you make monthly payments against your debt. A DMP requires the client to deposit money into a credit counseling organization’s account each month.
The credit counseling company uses these funds to pay off uncollateralized debt (also known as unsecured debt), such as credit card payments, school loans, and medical costs.
These debt payments go according to a schedule that you put together jointly by the counselor and the customer.
Creditors must frequently consent to the specified repayment arrangement. Creditors may opt to reduce interest rates or waive costs.
You can also use a debt consolidation mortgage, which is a type of long-term that can be used to pay multiple creditors at once. 2
Read: Difference Between Debt Settlement And Debt Consolidation
What are the Benefits of Credit Counseling?
A credit counselor cannot help you with money, but they can help you with their expertise and knowledge. Here are some benefits of credit counseling:
- Budget: A credit counselor can help you come up with a budget or strategy to repay your debt after identifying your income source.
- Reviewing your credit report: Having a good credit score is essential to qualify for loans and some debt relief options. A credit counselor can scan your credit report and spot inaccuracies in it. They can also suggest ways to improve your credit score.
- Counseling for Housing: A counselor can help you identify whether you can afford to live in a particular house or locality. And can help you understand better housing options.
- Bankruptcy: If you have no option but to file for bankruptcy, then a credit counselor can guide you through the process of bankruptcy.
- Debt management: A Counselor can negotiate with your creditors and get your debt reduced or interest rate reduced. They can also negotiate a different repayment plan to get you debt free in an easy way. 3
Preparing For Credit Counseling
If you have decided to talk with a credit counselor, then here are a few pieces of information that they would want from you:
- Debts you owe: This is the first information they would want from you. They would ask you to share with them information about all the debts you owe, their monthly payments, interest rate, repayment period, etc.
- Income: The credit counselor would need to see your paycheck for all your sources of income.
- Monthly expenses: Make a list of all your monthly expenses, such as rent, bills, utility, groceries, memberships, subscriptions, etc. Make sure you do not skip anything, as it will help the counselor to find the best repayment plan for you.
- Credit card information: Your credit counselor will ask you about the number of credit cards you own, the interest you pay on them, your current balance, etc.
How To Choose The Best Credit Counseling Agency?
If you have no idea how to find the best credit counseling agency, then here are some questions to consider:
- What all services does not agency offers?
- Do they work online or have a brick-and-mortar office?
- Is the agency accredited and listed in your state?
- Does the agency offer contract stating all the information about the time frame, fees, services, etc., of the program?
- How does the company ensure protection from identity theft?
- If the agency being transparent with you and working in your interest?
- What will happen if you miss out on a payment or simply cannot afford the payment?
- Check if the company is registered with Better Bureau Business or your state’s attorney general’s office. 4
What is the Cost Of Credit Counseling?
Many agencies offer credit counseling for free. However, you will have to pay if you enroll yourself in a debt management program that incurs monthly charges and set-up fees.
For this, you can expect to pay $50-$75 as set-up fees and monthly fees of $25 to $35.
Credit Counseling vs Credit Repair
When Should You Go For Credit Counseling?
If you think you are having a hard time managing your money or if you want to learn how to manage your finances better, then that is when you can go for credit counseling.
Apart from this, if you are considering debt relief and are confused as to which type of debt relief option you should choose from, then you can consult with a professional.
A credit counseling agency will be able to help you decide which is the best course of action to deal with your debt and if there is a better way available to helo you with your current financial situation. 5
Credit counseling is especially beneficial for those who are in heavy debt and don’t know how to manage their money and their debt.
By working together with credit counseling, you let them control your debt and manage your money more efficiently.
This could generally come without any extra fees, but some credit counseling organizations also take money for their services, but you have to be aware of every kind of service fee they have because sometimes these fees could be extremely high.
Can a Credit counseling agency help me come out of my debt?
Yes, a Credit counseling agency can help you in coming out of debt with their experience and expertise.
They can help you create a strategy to repay your debt, or they can find a suitable debt repayment method such as the avanlanche method, snowball method, etc.
What are some of the best credit counseling agencies?
Here are our top five credit counseling agencies:
- National debt releif
- Cura debt relief
- InCharge Debt Solutions
- Consolidated Credit
- Green Path
Can credit counseling hurt my credit score?
No, simply meeting a credit counseling agency will not hurt your credit score.
However, the debt relief option you choose might. A credit counseling agency might suggest debt relief options like:
- Debt settlement
- Debt consolidation
- Debt management plan
- Balance transfer
- Bankruptcy, etc.
Whether or not your credit score will get damaged depends on which of the following options you choose. 6
Amit Gupta is the founder of National Planning Cycles, a company that helps startups, individuals, and small businesses with their financial planning. He has a vast amount of experience in the finance sector, having managed Google Play accounts for some of the world’s most successful unicorns. Amit is an expert in his field, and he uses his knowledge to help others achieve their individual goals.
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