You want to get on track financially but struggle to juggle everyday living expenses and debt payments. Whether you’re living paycheck-to-paycheck or are tired of debt collectors calling and you’re starting to lose hope, there’s a light at the end of the tunnel.
Credit counseling could be a viable option. It’s generally offered by non-profit organizations and the initial consultation is free of charge. They’ll work with you to identify debt management strategies to help you steer clear of bankruptcy.
How Free Credit Counseling Works
Credit counseling is designed to help individuals and families identify solutions to resolve money management issues, get out of debt and avoid bankruptcy. Here’s an overview of how it works:
- Request a free credit counseling session to determine if you’re a good fit for a debt management program or if there are better options for your situation
- Enroll in a debt management program. The credit counseling company will reach out to your creditors to request concessions, like reduced interest rates or fee waivers.
- Pay the agreed-upon monthly payment to the credit counseling company each month. They’ll send funds to your creditors per the debt management plan.
- Continue to make payments until your debts are paid in full.
Some enrollees complete debt management programs in just 36 months. Your results will depend on your debt load and how much you’re willing to allocate to debt payments each month.
What Does A Credit Counselor Do?
Credit counselors conduct private sessions that span 30 minutes to an hour. During the meeting, they will create a realistic budget and review your credit health and outstanding debt obligations to determine if a debt management program is ideal or if you should explore other options.
There’s no cost for the meeting. However, you’ll have to agree to a soft credit check so the counselor can access the information needed to assess your financial situation properly.
How To Choose A Credit Counseling Organization?
Not all credit counseling organizations offer the same exceptional level of service. Before requesting a counseling session, here are some questions to ask:
- Is the credit counseling organization a non-profit?
- Are the credit counselors certified?
- Are counseling sessions available free of charge?
- What additional services are offered beyond debt management plans?
- Can you retrieve educational information and additional information about services without signing up for a counseling session?
- Does the counseling agency have a good reputation, or have complaints been filed with the Better Business Bureau or state Attorney General?
- Is the counseling agency approved by the United States Department of Justice to offer pre-bankruptcy counseling?
- What’s the fee schedule for services, and are there other options if they don’t quite work for your budget?
Credit Counseling Services
There are three primary credit counseling services: debt counseling, debt management plans and housing counseling.
Debt Counseling
The terms “credit counseling” and “debt counseling” are often used interchangeably because they refer to the same service. As mentioned earlier, it entails working with a certified credit counselor to assess your financial situation and debt load and offer solutions to help get you back on track, eliminate debt, and increase your savings.
Debt Management Plan
A debt management plan can help you get out of debt faster without tanking your credit score, as you’ll pay creditors what they’re owed. If you enroll in a program, the credit counseling agency will reach out to creditors on your behalf to negotiate concessions, which could include:
- Penalty or fee waivers
- A reduced interest rate
- A lower monthly payment
Creditors must agree to the terms of the debt management plan. You’ll make a single payment to the credit counseling agency each month, and they’ll distribute the funds to your creditors per the terms of the agreement.
Ultimately, you can reduce your total credit card payments up to 50 percent and save a bundle in interest. Fees apply for this service, depending on your state of residence, but they could be well worth the cost as most enrollees pay off their debt in 36 to 60 months.
Housing Counseling
Some credit counseling agencies also provide HUD-approved support through a knowledgeable housing counselor. They’re available to offer assistance to consumers looking to purchase a home, who currently own a home and want to maximize their investment or those facing foreclosure. Some credit counseling organizations also offer reverse mortgage counseling for homeowners who are 62 years of age or older and want to tap into the equity in their homes.
Frequently Asked Questions
Below, you will find frequently asked questions regarding credit counseling and how it can possibly assist you.
You can work with a credit counselor to create a plan of action that will stop creditor phone calls. This could include enrolling in a debt management plan, which allows the counselor to work out a modified payment plan with your creditors.
No, credit counselors do not offer legal advice. You should consult with an attorney if you’re being sued by a creditor, debt collector or need assistance with other legal matters.
Yes, credit counseling is confidential. If you decide to enroll in a debt management program following your initial counseling session, the agency will get your permission to reach out to creditors and work out concessions.
Credit counseling is worth it if you want to get a handle on your outstanding debt without ruining your credit or having to file for bankruptcy.
