Can You Benefit From Debt Counseling?

Debt Counseling

Let Experts Help You Settle Your Debt.

Is Debt Counseling The Right Option For You?
  • Knowledgeable experts can help settle your debt
  • Find the best solution for your situation
  • Get help with a personalized debt reduction plan

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  • Debt counseling encompasses a range of services, including but not limited to budgeting assistance and debt consolidation.
  • You should thoroughly research a debt counselor before providing personal information or paying a fee for services.
  • Some counselors will help you enroll in a debt management plan, which often involves negotiating for lower payments but may damage your credit score.

Debt counseling is designed to help those who are struggling with debt they cannot repay. With this service, an individual with experience in debt counseling will help you prioritize your bills and help you make a budget and plan to repay the debt.

He or she can also advise on the best next steps to take if you don’t have any disposable income to put toward unpaid debt.

Can You Benefit From Debt Counseling?

If you cannot pay your bills and have been thinking about filing for bankruptcy, you should avoid taking that step until you consult with a certified debt counseling service. If you do decide to file, you will be required to attend credit counseling sessions by the bankruptcy court.

How Does Debt Counseling Work?

When you attend your first debt counseling session, you should bring information about your monthly income, your monthly expenses, and all your outstanding debts. The debt counselor will review this information to help you come up with a budget. This may involve looking for areas where you can cut expenses to put more money toward debt repayment.

If you are unable to pay your bills, the debt counselor can negotiate with credit card companies on your behalf to lower your interest rates and/or your monthly payments. You will no longer use your credit cards. Instead, you will make one payment to the debt counselor each month, who will distribute this payment to your creditors.

This strategy, which is known as a debt management plan (DMP), can make it easier to manage your monthly expenses and make progress toward paying off credit cards and other debt. It can also help you budget because you are making the same payment each month, typically for up to 48 months. Before enrolling in a DMP, ask the debt counselor these questions:

  • How does the plan work?
  • Will my creditors be paid on time and in the correct billing cycle each month?
  • How do you determine the payment amount for my plan?
  • Do you provide regular, detailed account statements?
  • Can you negotiate with my creditors to waive late fees and finance charges and/or lower interest rates?
  • Which debts are included in the DMP, and which debts are not included?
  • Will creditors agree to consider my accounts current if I enroll in the DMP and make a number of successful payments?

How Can I Find a Qualified Debt Counselor?

When working with a debt counselor, it’s important to make sure that he or she is qualified. Check the firm’s credentials with the Better Business Bureau to determine whether it has been the subject of consumer complaints. You can also check with your state’s consumer protection agency and attorney general’s office.

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You should ask for references from former clients. Online reviews are a great source of information about credit counseling agencies.

Look for a non-profit credit counselor. Most agencies offer services in person as well as online and over the phone, so you can choose a firm with a method you prefer.

When you are selecting a debt counseling agency, the Federal Trade Commission recommends asking the following questions:

  • Do you provide free educational information? Avoid companies that charge a fee for materials.
  • What services do you offer? Ideally, this should include budget counseling and savings and investment classes in addition to debt management plans. Avoid firms that offer only debt management plans and dissuade you from investigating other options.
  • How can you help me get out of debt? The agency should provide a plan for your current situation as well as a plan to avoid future issues with debt.
  • What are your fees? Most debt counselors charge a fee, but it should not be exorbitant. You should get a written quote with a detailed list of services that are included in that price.
  • Do you provide a formal contract? Don’t provide personal information or pay a fee without receiving a contract.
  • Are your counselors qualified? All debt counselors should be licensed in your state, though states have varying requirements for licensing these professionals. Ask whether counselors have experience and professional accreditation, as well as the type of training they receive.
  • Are employees paid by commission? If counselors receive bonuses for signing up clients for specific services, you should look for a different agency.
  • What steps do you take to keep my personal information private? Never work with a debt counseling agency that doesn’t have measures in place to safeguard client data.

Is Debt Counseling Right for Me?

Debt counseling is not the ideal solution for everyone. If you are working with a credit counselor and negotiate lower monthly payments or interest, it may negatively affect your credit score. If your score has already been damaged by late payments, however, credit counseling may ultimately get you back on the right path.

The amount of debt that constitutes too much debt depends on your overall financial picture. However, most experts recommend keeping debt payments, including your mortgage, under 31% of your gross (before-tax) income.

Explore alternatives before deciding to work with a debt counselor. If you’re concerned about damage to your credit, consider seeking assistance from a financial planner. He or she will charge an hourly rate to help you make a budget and meet financial goals, including debt repayment. You may also be able to find free or low-cost financial planning courses through your local community center, school, library, or church.

If you need help repaying your debt, check out Solvable today. We match individuals just like you with well-reviewed companies that have experience with debt counseling.

Answer a few basic questions about your credit card, student loan, and/or tax debt to get started on the path to a better financial future.

 

Andrea Miller
Author:
Andrea Miller

Let us match you with the best credit card debt relief company

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