Credit counseling and debt management will help you deal with your financial challenges and debt problems. Debt management and credit counseling are tightly linked to each other and debt management plan usually follows credit counseling sessions.
Credit counseling: What does it involve?
Credit counseling involves educating the customers on how to manage debt. It aims to increase your awareness level and make you an informed consumer. It can also help you repair your credit rating. A credit counselor reviews the present financial situation of a person and informs him/her about healthy financial habits that will enable him/her to lead to debt free life.
Debt management help
Once the credit counselor has assessed your present financial situation, he or she will provide you with various options for debt management. Debt management involves a third party (debt counseling agency or debt management company) to help a debtor repay his debts. Technically, debt management is a structured plan, designed by a third party for repayment of debts. The plan is known as debt management plan. Debt management consists of various methods, such as debt consolidation, debt negotiation, debt settlement etc. to help tackle debts and bring about financial stability.
Most companies provide both services – credit counseling and debt management. These companies can be either credit counseling agencies or debt management organizations. It is worth mentioning here that such services are used only to repay unsecured debts, which include credit card bills, student loans, medical bills, personal loans and the like.
Advantages of credit counseling and debt management
There are many advantages of credit counseling and debt management. One big advantage is reduced monthly payments. The counselors negotiate interest rates and late fees etc with the creditors in order to ensure easy payment terms for you and at the same time waive off some charges. The counselors also guide you and give advice on ways to save money in order to repay your existing debts.
They will also provide support in coping with harassing creditors and make you understand the pertinent financial issues. Debt management counselors make you aware about your legal rights and provide legal assistance against any kind of harassments or threats.
Credit counseling and debt management also helps in consolidating your multiple payments in order to form a single monthly payment (debt consolidation) that is easier for you to pay than the sum of all individual payments.
Most importantly, timely counseling and proper debt management can help avoid bankruptcy.
It isn’t free
However, one must keep in mind that the organizations that offer credit counseling and debt management might charge fees, such as application fee, enrollment fee etc., which can add to your immediate expenses. To avoid any kind of exorbitant fee, you must also check the non-profit organizations that have qualified counselors. In any case, your choice should primarily be governed by the quality and success rate of services rather than anything else.
To verify the status of an organization, you can check online that the organization is a part of either the National Foundation of Credit Counseling (NFCC) or the Consumer Credit Counseling Agencies (CCCA) or both. Also, in order to avoid any kind of fraud, make sure that all the verbal agreements are put down in the form of a written contract.
So, weigh the pros and cons of credit counseling and debt management before opting for these services. Even if you have decided to opt for credit counseling and debt management, you must ensure that you are careful with your finances in order to prevent aggravation of the situation. You must prepare a budget, cut down on all unnecessary spending and prioritize your debts.
Once you have a debt management plan in place, you should make regular monthly payments (to the agency or debt management company) as per the plan. You must also ensure that the agency makes timely payments to the creditors on your behalf.