A Guide To Credit Counseling – How Credit Counseling Works
When people go into deep debt, they often think that the only solution to the problem is to simply get a bankruptcy and start over again. Bankruptcies, though, aren’t exactly “starting” over—they stay on your credit record for years and also make you look bad to potential lenders. So what are you supposed to do if you’ve got deep debt? You could take the bankruptcy route and damage your credit more or you could do something else that will allow you to get out of debt while not further harming your credit: credit counseling.
What is Credit Counseling?
Credit counseling is essentially debt counseling. When you get into a lot of debt and are unable to pay it off on your own, you’ll go to a credit counselor who will tell you the best method of paying off the debt. Credit counseling gives you an effective way of paying off whatever credit card debt you may have.
When should I consider Credit Counseling?
Anyone who has debt which they cannot pay off should consider credit counseling. Credit counseling offers you a way out of the mess of credit card debt. Qualified and experienced credit counselors can look at your debt and determine the best way of paying it off. Depending on how much debt you have, your counselor may tell you about a debt reduction plan to help rid yourself of the debt.
What is a Debt Reduction Plan?
Under a debt reduction plan, your counselor will consolidate all your debts into one monthly payment which you give to the counselor who then disperses it to creditors. Your counselor will also attempt to lower your interest rates and will arrange payments to each creditor in a way that enables you to pay off the debt as quickly as possible. Most debt reduction plans last anywhere from 12-60 months, although people with a huge amount of debt ($30,000 or greater) may end up in a debt reduction plan of longer than 5 months. How long your debt reduction plan lasts will entirely depend on how much you can afford to set aside for your bills each month and how much debt you have.
Why is Credit Counseling Effective?
Credit counseling is effective because those who work as credit counselors are able to financially analyze any situation and tell the person who is in debt what the best option is for them in regards to paying off the debt. They are able to create individualized plans for anyone who is debt.
Why is Credit Counseling NOT Effective?
Generally speaking, most credit counseling is effective. However, if you go to a credit counseling agency that is unaccredited and dishonest, you will run into big problems. In fact, you may even be worse off than before. That’s why picking the right credit counseling agency is extremely important.
How do I pick the right Credit Counselor?
The first step toward selecting a credit counselor is to open your phone book. Look for the section of the yellow pages about “Credit counseling”.
Take a look at each listing—there should be at least one local credit counseling agency in your area. As you look at each listing, make note of the name of the counseling agency.
After you’ve come up with a list of agencies, log on to Google.com and google each agency. Really research each agency so that you do not end up with one that isn’t effective. You may want to check out http://www.nfcc.org/ for a list of accredited credit counseling agencies. Those agencies that are accredited are usually the most effective ones.
Questions to Ask a Credit Counselor
Once you narrow the list down to potential suitors, you’ll still have some work to do before you can pick a good credit counselor. Each agency that you may consider should offer a free session. Take advantage of this session to ask the counselor some of the following questions:
- What fees are associated with using this counseling agency to get out of debt? While virtually every counseling agency is non-profit, they will still all charge some fees to help cover administrative costs. Generally speaking, you will not want to choose an agency that charges more than $50 a month for their services.
- How will you tackle my debt?
- Will you employ a debt reduction plan?
- Will I have to pay any extra fees?
- It’s important to know how a perspective counselor will help you to get rid of your debt before you even sign up with them.
- How long will the plan take? In other words, how long will it take for me to pay off all this debt? Time is money, and if you’re looking to pay off your debt in a specific amount of time, perhaps a year or two, it’s important to ask how long it will take you to pay off the debt using this credit counseling agency.
- Are you accredited? It’s a legitimate question that you should ask every single perspective credit counselor. Good, accredited counselors will not mind this question. Those who aren’t will mind the question, and that’s a good indication that they are not right for you.
- Will you tailor your plan to fit my unique needs? Everyone’s situation is different and good credit counselors will take all of your needs into consideration when coming up with a plan. Make sure that the credit counselor that you are considering will be able to tailor fit a plan to you.
- Can I meet with you once a year to discuss my debt and how much I’ve paid off?
It’s important to stay updated when it comes to using credit counseling. Most credit counseling agencies will encourage meeting up with their clients once or twice a year to discuss details of the plan and how well it is working. They will also review your credit report with you.
Recommended Credit Counseling Agencies
It is often very difficult for some people to find credit counseling agencies that are respectable and legitimate. While the agencies below may not have offices in your city, some offer online services that you may be able to use.
• GreenPath – GreenPath has offices in many states and cities. They’ve helped millions of people get out of debt and are accredited.
• Delray CC – Delray offers completely free credit counseling services to millions of people. They are accredited and can counsel via the internet or the phone.
• MoneyManagement – MoneyManagement offers services both online and in person at their many locations. There are some fees associated with MoneyManagement, but they are minimal. MoneManagement is fully accredited and very effective.
Keep in mind that these are just three of the many possible credit counseling agencies that you can use to get out of debt. Check the NFCC for more possible options.
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