Credit counsellors provide credit counselling to help consumers with financial problems, from budgeting, insolvency, and property purchases to debt management.

Given the weight, credit counselling is as important as financial literacy as it prepares you for future financial distress. Understanding how credit counselling works and becoming financially literate is paramount in debt management.

This post will explore the role of credit counselling in debt management and provide tips on approaching the different concepts of credit counselling. But before then, it would help to know what credit counselling is all about.

What Is credit counseling?

Credit counsellors offer credit counselling to guide consumers on money and debt management, budgeting, and consumer credit. The primary goal of this service is to help debtors avoid insolvency should they find it difficult to pay back their debts.

Most counselling services will confer with creditors on the debtor’s behalf to lower credit card and interest rates and disregard late fees. This is because most of them operate on a charitable basis, making no profits. Not all credit counselling agencies use this policy; some are for-profit.

How credit counseling helps manage your finances

There are many services to choose from when dealing with credit counsellors. The services offered through credit counselling are as outlined below. Keep reading to learn how each contributes to building your financial literacy.

1. Housing and homeownership counseling

The National Foundation for Credit Counseling (NFCC) offers homeownership counselling to those interested in buying a home but need more clarification about their financial health. Additionally, counselling services can be helpful if you’re struggling to pay your house rent.

Similarly, if you’re a homeowner struggling to keep up with mortgage payments, finding assistance in the form of loan adjustment will go a long way. However, depending on your choice of service, you may be charged if you have rent issues.

2. Debt management plans

Debt management plans let you merge your debts to make repayments more comprehensive while reducing interest rates. Similarly, credit counselling services require you to make a one-time monthly payment within 3-5 years and then distribute the money among creditors. A credit counsellor can help you register for a DMP if you find trouble repaying your debt.

3. Credit reviews

A professional credit counsellor will analyse your credit report, rule out any discrepancies that could affect your credit score, and guide you on ways to dispute them. Often, they can resolve the factors affecting your score and advise you on taking concrete steps to enhance your credit score.

4. Reverse mortgage counseling

Reverse mortgage counselling can be helpful for homeowners wishing to explore mortgage options. A credit counsellor will examine your financial situation and advise you on the best action plan. So, having a creditor counsellor look into your finances is paramount.

5. Budgeting

During your first appointment with your credit advisor, you’ll analyse different aspects of your finances, including your income, expenses and money goals. Then in subsequent counselling sessions, you may discuss whether debt counselling is your best bet. If so, your counsellor will guide you through creating a budget to help you manage your finances.

6. Student loan counseling

If you need help keeping up with the monthly payments for student loans, credit counselling can help you develop a strategy for paying and managing your debt. Your counsellor will analyse your refinancing options and negotiate with your creditors on your behalf. However, it may cost you a fee as services vary from provider.

Is credit counseling the right fit for you?

The situation at hand can help determine whether or not a credit counselling program is the right fit for you. Credit counselling often won’t solve your financial problems, as different creditors have different loan structures. Below are factors to consider when deciding whether credit counselling is the best option for you.

  • The least possible amount you should owe an unsecured creditor is $5000. Going after DIY options should be your ultimate goal if the debt is lower than that.
  • An income is a must-have to be entitled to lower monthly payments. This action plan is ideal for employed individuals with other income sources.
  • Keeping your accounts open with the actual creditor is the most reliable action. That way, your creditors aren’t obliged to go to collections. However, if they are there already, engaging in a debt settlement with your creditors will go a long way.

While there’s a chance that collection accounts could be involved in a debt management plan, creditors are less likely to consent to such repayment terms. Furthermore, collection accounts do not impose interest charges, so you won’t be able to take advantage of reduced interest rates offered by credit counsellors.

Bottom line: Can credit counseling help me get out of debt?

Credit counselling can help you stay debt-free depending on your circumstances and needs. For instance, a credit counsellor can help you create a budget, analyse your income and expenses, and point out areas that need improvement to have more money to repay your debt.

A credit counsellor can also walk you through various repayment strategies to help you choose the best course of action. Whether you’re looking for ways to get out of debt or improve your financial literacy, enrolling in a credit counselling program is the best decision.

DISCLAIMER – “Views Expressed Disclaimer: Views and opinions expressed are those of the authors and do not reflect the official position of any other author, agency, organization, employer or company, including NEO CYMED PUBLISHING LIMITED, which is the publishing company performing under the name Cyprus-Mail…more