Learn About Credit Counseling & Debt Assistance

Learn About Credit Counseling & Debt Assistance

Credit counseling is primarily offered by nonprofit agencies that work with consumers to improve their financial situations and debt management strategies.

Counselors may offer several services, including assistance with budgeting, a free review of your credit report, referrals to services and resources that you may qualify for and steps on how to improve your financial situation moving forward. 

Consumer credit counseling services are usually free and, depending on the agency, may take place in person or over the phone. However, it is important to verify whether or not there is a fee before utilizing services with a particular agency.

In order to gain the most benefit from counseling services, you should have all of your finances together prior to speaking with a counselor. It is also important to understand the difference between counseling and credit repair agencies as these two types of agencies often offer some of the same services.

What is consumer credit counseling?

Consumer credit counseling services provide assistance to individuals who wish to improve their finances or work towards improving their credit score.

Counselors can provide several services as well as offer referrals to other local, state and government resources that may be able to provide assistance. On average, counseling sessions may last between 20 minutes and an hour but the length of time depends on finances and debt.

Generally, credit counseling is free as it is most commonly offered by nonprofit organizations. Depending on the agency you choose, counseling may be provided over the phone or in person. Some agencies may also assist you in creating a payment plan with your creditors in an effort to prevent creditors from charging a late fee or pursuing a collection agency for unpaid debt. 

Understanding Consumer Credit Counseling Services

Credit counseling services are available to assist you in receiving personal feedback on how you can improve your financial situation. Additionally, your counselor may be able to provide services such as: 

  • Assistance with creating a budget. 
  • Provide you with ways that you may be able to reduce monthly expenses to further allocate resources towards your debt.
  • Provide you with a free copy of your credit report. 
  • Go over important steps that can improve your financial situation as well as discuss how and when to repay debts that you currently owe. 
  • Provide referrals to other tools and resources. 

In some cases, a counselor may advise you to seek a debt management plan (DMP) through a repair agency. However, this is generally a plan that is only suggested as a last resort.

These plans can assist you in paying your debt off faster, as debt management plans typically include consolidations or paying off an old debt for an agreed-upon amount that is less than the amount that is owed. While this can assist you in paying off debts, it can also reflect negatively on your credit score. 

Depending on your financial situation and the amount of debt that you owe, your counselor may discuss your options for bankruptcy with you. Like a debt management plan, bankruptcy should only be considered as a last resort as filing for bankruptcy will have a substantially negative effect on your credit score for up to ten years.

What is the difference between credit counseling and a credit repair agency?

A credit repair agency offers some of the same services of credit counseling. However, these services are generally provided at a fee. 

Additionally, credit repair agencies can speak with your creditors on your behalf to arrange a settlement for all applicable debts. This can assist you in paying down debts with a lump sum. However, credit repair agencies will charge a fee for the service, which is typically a percentage of the amount that you had owed. 

Debt settlement may also involve debt forgiveness, which can carry tax implications. Debt forgiveness can also be detrimental to your credit score for several reasons. For starters, the credit repair agency may advise you to stop paying your creditors in order to open the door to the possibility of debt forgiveness.

Additionally, once a company agrees to a debt forgiveness plan, the fact that you did not pay your debt in full will remain on your credit report for up to seven years.

Debt forgiveness involves paying less than what you owe in order to clear a debt. Therefore, a creditor is not likely to accept a debt forgiveness plan unless they believe you will not pay your debt.

This can be harmful to your credit score and history as accounts must typically go into default and potentially to collections before debt forgiveness becomes an option. 

Generally, debt settlement should only be considered as a last resort. Therefore, you are strongly advised to seek consumer credit counseling services prior to seeking assistance from a credit repair agency. 

Should you wish to seek services from a credit repair agency, it is also worth knowing that the Federal Trade Commission does not allow these agencies to charge you a fee until the company has met the following requirements:

  1. The credit repair agency has successfully renegotiated, settled, reduced or changed the terms of at least one of the debts that you owe. 
  2. You and the credit repair agency have reached an agreement on your debt management plan. 
  3. You have made at least one payment to the creditor or debt collector under your new negotiated agreement. 

Not all credit repair agencies charge the same fees. However, steer clear of any agency requiring you to pay a fee upfront in return for assistance in settling your debts. You should also always inquire as to an agency’s fees prior to agreeing to a debt management plan. 

How do I find credit counseling near me?

Credit counseling agencies are abundant, especially those that conduct counseling session over the phone, as these agencies do not require a brick-and-mortar location in your area. However, it is worth taking the time to review counseling agencies in order to select the right counselor for you. Doing so can also help you to avoid scams. 

As stated previously, most credit counselors are nonprofit organizations and offer free services. When searching for a financial planner and an agency, it is important to look for the following:

  • Ensure that the credit counseling agency is accredited by the National Foundation for Credit Counseling. 
  • Check the agency’s rating with the Better Business Bureau to make sure that the organization is in good standing with the BBB. 
  • Find a counselor that you are comfortable with. 

After you have selected a counseling agency, be sure to take at least an hour to go over your finances. To make the most out of your session, be sure that you are free from distractions and that you have all of your financial records in front of you before the session. This should include your income, household expenses and debts. 

Always ask the counseling agency about any fees that you may incur through services. This can help you narrow down your options as well as determine which agencies might actually be credit repair agencies that offer debt management plans and lump sum payment arrangements.

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