Purpose Of Debt Counseling
Debt counseling is often sought by people who end up in debt that is over their heads
. They aren't sure how to get out of the situation so they seek help elsewhere. Counselors work directly with the person's debtors to make a repayment plan that works for both of them. It is important that they know just how much debt both secured and unsecured a person has. They typically only work with the unsecured debt but they are able to get a much clearer financial picture by knowing how much debt is owed in the larger picture. Usually they are able to lower the interest rate on loans or credit cards and get late and over limit fees reduced or eliminated completely. Some debt counselors will not help someone if they feel the debt owed is too large to tackle in a timely manner, usually between two to four years.
It is important that you choose the right company to work with for credit counseling. Ways to check reliability are by looking at their website, speaking with the counselors to determine how comfortable you are with their work, seek out references and reviews, and if they are with the better business bureau check for any incidents under the company's name.
The process works by a client seeking services providing the credit counselor with any information that they deem necessary to work with them. This includes the debts they owe, who they owe them to, and how much income they have coming into their household. Then they can sit down to work out a budget that works for them with a set payment plan to begin their journey to paying off the debt that they owe.
The counselor works the plan out by evaluating income and working out which portion of it can go towards getting the client out of debt. Usually the debts or majority of them are credit cards but they also may include student loans and medical bills. They will work with each of the creditors to get them to agree to a payment plan that will work for the client without straining them too much. Counselors typically charge a fee but they receive the monthly payment from the client and allocate it to each of the creditors as necessary. In some cases a consolidated loan can be taken out to pay off all the debts while the client pays that back every month instead.
The client needs to be cautious though because if they break the agreement and stop paying the agreement is off and the interest rates return to what they were beforehand and balances may sky rocket again. Credit counseling can affect a person's credit score in either a negative or positive way. If balances were negotiated to be lowered this usually is a negative hit while if interest rates were just lowered it's possible making on time payments will increase someone's score. Any bad credit you have or collections will stay on your report for 7 years and bankruptcies longer at 10 years.
Credit counseling is an excellent way for people to learn some budgeting skills and to get out of debt if they require some help. Some counselors go above and beyond by assisting customers with investing the money they were paying off debts with. Learning how to manage money and pay off debts that are outstanding can help you improve your credit score and avoid future mistakes. It's not only about getting the debt paid but about teaching yourself to use credit wisely so you don't end up in the same situation again months or years down the road.
by: Lori English
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