You might have heard of credit counseling, about its pros and cons. Credit card debt is the worst thing to manage. Double-digit interest rates make it challenging to come out of the debt. Being in debt is an obstacle toward financial independence. Not only that, being in debt puts on us a sheer amount of guilt, which makes it difficult to take baby steps toward economic improvement. The result is confusion, and you don’t know where to turn for help.
An accredited credit counselor can help you here.
What is Credit Counseling?
Credit counseling is a free resource provided by non-profit financial institutions. You’ll work closely with a financial counselor who will give a review of:
- Credit report/score
The counselor will guide you regarding the next steps. You can avail credit & debt counseling, student loan counseling, mortgage counseling, and so on. You can receive advice on a phone call or through an internet session. The duration of the meeting can be 20-60 minutes. Your advisor will understand your situation, and will then guide you towards the best solution.
You don’t have to be in debt to qualify for credit counseling. You can consider professional advice even when you get your first credit card.
How to Choose the Right Credit Counselor?
- Make sure that the organization is approved by the National Foundation for Credit Counseling.
- You can check BBB ratings.
- Only work with a counselor who can provide advice without making you uncomfortable. It can be challenging to explain your financial situation to a stranger. You need someone who can understand your case and can show you a way out.
- Credit counseling is free for consumers. Don’t work with a company that wants to charge you for free information or workshops.
The initial session with a counselor is always free. If needed, your advisor can recommend a debt consolidation service or a debt management plan. However, this is still a last resort. At first, the job of the counselor is to understand your situation and make the best out of the circumstances. Most probably, they can help you formulate a plan to get out of debt.
If things are not working out smoothly, they can recommend other tools. A debt consolidation service is another aspect of credit counseling. The goal of this service is to negotiate with your lenders so you can get lower interest rates. When you go with that plan, you’ll pay a fixed-sum each month to your company, and the firm will pay your creditors.
Debt Consolidation Vs. Credit Counseling
A debt management plan helps you settle your debts with your creditors. The goal is to reduce your interest rate. The best part is that the firm will deal with creditors, and you don’t have to attend their calls.
|Debt Settlement Plan
|Mostly offered by a private company
|Provided by a non-profit organization
|You pay a one-time processing fee and then an ongoing monthly fee.
|Free of charge.
|You stop paying your creditors until your organization negotiates better rates with them.
|You keep paying your creditors, but your advisor can attempt to negotiate rates with your creditors.
|Your creditors can sue you for non-payment. At the least, your credit score will suffer.
|No effect on credit score because of credit counseling.
|A debt settlement plan can achieve debt-forgiveness for you, and that might have tax implications.
|No tax implications.
A credit counseling company can offer you a debt settlement plan. They cannot reduce your debts, but they can help you reduce overall payments. Your counselor will talk to your creditors. They can negotiate interest rates or the loan repayment period. In some cases, the organization will charge you a small fee for their services.
Receiving counseling is never a wrong idea. If you are struggling with personal debt, talk to someone who can offer the right solution. Sometimes, a 3rd perspective can make all the difference.