6 Ways Credit Counseling Can Help You
6 MIN READ
Published April 06, 2023 | Updated May 03, 2023
If you are struggling to pay off debt and need a plan to reach your goals, credit counseling can provide you with services and guidance to help you get back on track.
Credit counseling is designed to help those who need help to manage their debt, budget, and finances. From budgeting and debt counseling to getting interest rates revised down to an average of 9%, a good credit counselor can assist you in restructuring what is paid to each creditor monthly to pay off debt sooner. By doing so, you can maintain your solid credit score, and avoid any serious financial challenges.
3 in every 4 American middle-class households say that their income is not keeping up with the rising cost of living. It’s more important than ever to avoid debt and set aside emergency savings.
Nonprofit and for-profit credit counseling companies can help you find a way to deal with mounting debt so you can start contributing to your emergency funds.
Understanding more about how it works will help you determine if it’s the right solution for you.
What is Credit Counseling?
Credit counseling is a term that describes services that help people with money management. A large part of the work in credit counseling involves creating debt management plans and individual counseling.
Nonprofit credit counseling companies are affiliated with organizations like the NFCC and typically offer a free initial session.
Fees may apply for services such as debt management plans. Credit counselors will analyze your financial situation and create a personalized plan to help solve your debt problems.
What Are the Benefits of Credit Counseling
A good credit counselor can help you pay off your debt in about 5-7 years, as they work with you to analyze your budget, and help you commit to a plan. Ultimately, their goal is to help you gain peace of mind knowing that you have a plan to pay off your debts.
Here are a few additional benefits you can expect:
- Credit Counselors offer financial education so you can gain knowledge that will help you improve your financial well-being. This financial literacy will help you in the future in a number of ways.
- Credit counseling can help you optimize your budget. They can provide you with the tools you need to make informed decisions about your finances. Ultimately, if you stick to on time monthly payments, and commit to paying down your debt, you will likely be able to improve your credit score over time.
- Your counselor can help you strategize how to pay off the high-interest debt that may otherwise keep you trapped for years.
- Enrolling in a debt management plan can help stop aggressive collection calls so you can focus on paying off debt.
- Credit counseling can also help you reach your financial goals, such as finding a mortgage and preventing foreclosure.
6 Ways Credit Counseling Services Can Help You
A credit counseling agency can recommend many solutions to help you resolve your financial issues. Here are six ways credit counseling can help:
1. Debt Counseling
During the initial debt counseling session, your credit counselor will collect your information about your expenses, income, assets, and debts. They may also pull your credit report to review your credit score.
Your counselor will then recommend solutions to help pay off your debt. Based on your debts and income, they may recommend a debt management program or another solution.
2. Debt Management Plan
If you have sufficient income, your credit counselor may recommend enrolling in a debt management plan. A debt management plan does not reduce the amount of debt you owe to your lenders.
If you have unsecured debts such as credit card debt and loans, a debt management plan may help. It makes it more affordable and easier to pay off your debt over 3 to 5 years without having to take out another loan.
Your counselor may negotiate with your lenders to lower interest rates and waive off certain penalties. In exchange, you may be required to close a few credit cards.
If you are consistent with making monthly payments, it is an effective way to pay off your debts.
Credit counseling organizations usually charge a setup fee of around $50 to enroll you in a debt management plan. You’ll then be required to pay a monthly fee, which is approximately $30, depending on your debt amount and your state.
3. Credit Report Reviews
Your credit counselors can pull your free credit reports and review them with you. They can help you identify items or errors that may be lowering your score.
They can also give you a better understanding of what is hurting your score so you can take the recommended steps to start building a positive credit history
4. Bankruptcy Counseling
Credit counseling agencies can help you determine if filing for bankruptcy is the right solution for you. They can educate you about the pros and cons of bankruptcy and how it may affect your finances and credit score.
Your counselor can also provide you with pre-discharge education so you can receive a completion certificate before your debts can be discharged by the court.
5. Mortgage Counseling
Many certified credit counselors specialize in providing housing counseling services.
If you are planning to purchase a home, counseling agencies can help ensure that you are financially prepared. If you own a home and are struggling to keep up with mortgage payments, your counselor can help you with loan modification programs.
Additionally, counselors can teach you how to budget, pay taxes, find a mortgage, deal with home inspections, and other areas that are necessary for homebuyers. These classes are offered by HUD-approved housing counseling agencies.
6. Student Loan Counseling
Student loan counseling services can help you determine the right plan for managing and repaying student loans.
A professional credit counselor can discuss different repayment options that may work for you, such as refinancing and loan consolidation.
The federal government currently offers eight repayment plans with different eligibility requirements and benefits. Your credit counselor can help you identify which repayment option will be the most suitable for you.
What to Look For in a Credit Counseling Company
Before you decide to work with a credit counseling company, it is important to vet them thoroughly. Here are a few things to consider:
- Ensure that the agency you work with is certified and accredited by the National Foundation for Credit Counseling. This is a good way to ensure that it is a reputable company that maintains a high standard of practice.
- The prices of the services offered by credit counseling agencies vary by state, agency, and the nature of the service. Make sure you understand how much you’ll be paying for the services, and that the agency is properly licensed in your state before you commit to a program.
- Many agencies offer in-person counseling for select locations. Check to make sure you have easy access to the counseling services for your location.
- Avoid working with any company that asks for upfront payment before delivering any services.
There are more ways than one to deal with overwhelming debt. Credit counseling is one debt solution, but you may also be eligible for other programs such as debt consolidation or debt settlement.
TurboDebt can help you find the right debt relief program for your needs. We offer advising, consultation, and planning services to help ease the burden of debt.
Our debt relief services can put you on the path to a debt-free life. Contact us today for a free consultation.
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