Credit counseling is usually offered by non-profit organizations with qualified counselors who are trained and certified to handle different financial areas such as consumer credit, money and debt management, and creating budget plans. Knowledgeable counselors will guide you in customizing a plan to help sort out your money problems.
How it works
Individuals usually turn to credit counseling when they feel they need professional assistance in handling financial problems or want to improve their financial health.
In this type of financial management assistance, you will work with a credit counselor to handle and improve your financial situation. Depending on their helping methods, some offer tools, and resources to help you control your money better.
An initial counseling session will occur once you decide to have a credit counselor. Most of the time, they would offer follow-up sessions if needed. A credible agency should offer information about its services for free without asking for details about the client’s situation.
These companies can help you create a debt management plan or DMP that lets you make a single payment to your debt monthly. A DMP requires a consumer to deposit monthly funds into an account handled by the credit counseling organization. They will use the money to cover unsecured debt like credit card bills, student loans, and medical bills.
Available services under credit counseling
Debt management plan
Credit counselors will create plans to help put all your consumer debts into one and reduce the interest rate on your credit card debts. Also, they will set up one monthly payment to cover the debt for up to three to five years. A DPM usually comes with a set-up fee and a monthly fee.
There are two financial education sessions. The first occurs before you file, while the second one will come before your debts are discharged. Both sessions carry a small fee.
Usually, these are free initial sessions that last an hour long. This process dives into your financial situation and assesses your financial goals. Additionally, it considers your income and expenses. By the end of the session, the counselor may decide if you need additional counseling to help you out more.
Finding an exemplary credit counseling service
Remember that highly regarded credit counseling organizations will provide clients with free information about their services. Here are some things to note when finding the most suitable credit counseling service.
Know the services they offer
Look into several organizations and see the range of services that they offer. Find out if they have budget counseling and management classes for spending and debt or if they can provide educational materials for free since organizations that charge for information are often red flags. Also, know how they are offered: in-person, by phone, or online.
Know their fees
Find out if they have set-up fees and monthly fees. While most credit counseling organizations are non-profit, their counselors may still charge you for some specific services. Remember to have a specific price quote in writing to have proof if they ever charge you more than you both agreed on. However, if an organization refuses to help you because you cannot afford their fees, look for other organizations.
Know their counselors’ qualifications
Do a simple background check on the organization’s counselors. See if they are accredited or certified. Learn what qualifications they must be credit counselors and what training or professional certifications they received. Knowing this information can help determine whether they can handle your financial situation.
Know how they handle contracts
Find out if you will have a formal written agreement or contract with them. If they provide contracts, thoroughly review them, and ask about the parts you cannot understand. Additionally, ensure that all verbal promises they made are included in the written agreements.
Before you get started
Make sure you fully understand where you stand in your finances. Gather all the essential details about your current situation to properly decide if you need assistance from a credit counseling agency. Try free initial sessions from different organizations, compare their services, and pick the one that offers the most relevant services to your financial status.
Since you are likely to establish a continuous professional relationship with your chosen credit counseling agency, ensure that you know the fees they charge, considering the possible additional fees for specific services. Also, make sure you are comfortable working with their counselors to avoid conflict.
Credit counseling services are helpful regardless of how severe or straightforward your financial concern is. Whether you have a few simple questions about handling your funds or significantly need help managing or improving your financial situation, you can seek their assistance and guidance.
Getting help from a credit counselor can help you gain access to financial tools and resources to monitor your credit. If you plan on working with an established non-profit organization, ensure they have your best interests at heart.
On the other hand, if you think credit counseling is not suitable for you, other options can help you sort out your financial problems and work towards your goals.
For instance, debt settlement services, also called debt relief or adjustment services, offer to deal with your creditors on your behalf and pay down your debt depending on a negotiated settlement. However, some companies can charge expensive fees for their services.
Another option is balance transfer. Credit card debt struggles can be challenging to handle. Try a credit card with an introductory 0% Annual percentage Rate (APR) balance transfer offer. This would buy you time to pay down your debt without interest payments. But if your balance is still not fully paid when the intro period ends, you will start building up interest on that balance at the card’s regular APR.
Furthermore, do not let your financial health drop to a point where recovery is almost impossible. As soon as you experience issues that you think will bring adverse effects or you begin to have doubts, you can try to seek services from credit counseling organizations. The help they bring and the lessons they teach can even be helpful in the long run, even when you are past your stage of financial downturn.