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If you feel that you are not effectively managing your personal debts, then you should certainly consider credit counseling. Credit counselors are financial professionals who are experts at assessing your current debts and overall financial health so that you can start to move in the right direction. When you work with a credit counselor, you will be walked through areas of your financial life, like your credit, money management, debt management, and overall budget, in an effort to address your debts.
Working with credit counselors is a great choice for you to consider if you have been feeling a mass of stress around your financial life, especially with the debts you’re carrying. If you’ve gotten to the point when your financial situation is so bad you are afraid to open bills or look at your account balances, you should definitely consider credit counseling.
If you feel that speaking to a credit counselor is something that can ultimately be a benefit to your financial life, then read the guide below to get your finances moving in the right direction once again.
How Does Credit Counseling Work?
Working with a credit counselor is a much different experience than speaking with a traditional financial advisor. They differ in the sense that the credit counselor will actually negotiate with your creditors to try to make your financial situation better.
Credit counselors do this by negotiating with the credit company in order to lower your interest rate or waive off any late fees you may have. This is great for you because it means that your overall debt will go down and you won’t have to pay as much as you thought you did.
When you are working with a reputable credit counseling organization, they are going to have expert staff that is experienced in different financial situations. Chances are, they have worked on situations that were similar or even worse than the one you’re currently in. These counselors will walk through your specific situation as opposed to offering a cookie-cutter style solution. They understand that every situation offers many different variables, and they want to attest to what you need.
In order to begin working with a credit counselor, you are going to have to start with an initial consultation. This is a meeting that typically takes around an hour. You’ll go over all of the basic aspects of your current financial life. It is important to be very upfront and honest with the credit counselor. The credit counselor you are working with will need as much information about you as they can get in order to better understand your situation.
From there, the credit counselor will likely write you out a debt management plan, so you are able to have a road map of what you will need to do moving forward. The cool thing about a debt management plan is that it all comes together in one monthly payment. It doesn’t matter how many different avenues of debt you have; the debt management plan comes as one monthly charge.
The debt payments that you pay will follow a schedule that both you and your credit counselor will plan out together. They want to make sure that you still have enough monthly cash flow to pay your bills and feed your family. Though it may be a little while before you can really spend some money on entertainment or things of that nature.
It is also important to note that this is a service that differs significantly from a debt settlement or debt consolidation. Those are situations in which a company will actually negotiate an agreement to get your debt lowered. Working with a credit counselor can certainly lower your overall debt, but it is a much different process.
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The service offered by a credit counselor is certainly something that can be of great benefit to anyone who has accumulated a mass of debt that seems insurmountable to pay off. Credit counseling companies are often non-profits that try to give you the best service without you having to give over much of a fee.
In many cases, credit counselors can either see you in an office or virtually. This comes as an advantage to you because you can connect with the best credit counselors around no matter how far from you they are. There are many universities, military bases, and credit unions that offer credit counseling services. These can be great resources for you to use, but as non-profits, it is not guaranteed that their services are going to be free or useful. It is up to you to determine which company will be of the best benefit to you.
It is important to note that some of these credit counselors can charge pretty high fees. Make sure you understand exactly what you will be paying to your credit counselor before you enter any deal with them. However, there are nonprofits that provide low-cost or even free credit counseling services, so you should definitely see if there are any in your area if you are looking for help getting out of debt.
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Can a Credit Counselor Get You Out of Debt?
A credit counselor can absolutely assist you in your journey out of debt. They are not going to be able to execute any plan for you, but there is certainly a mass of value that they can bring to you which will ultimately enable you to get yourself out of debt. It is, of course, certainly understandable to realize that your current situation may be a little too far off. In this case, the credit counselor would be more likely to be able to help you with minimizing that debt as oppose to fully erasing it altogether.
The best example of this would be a credit counselor who can assist you with creating a realistic budget. This would be a great benefit to you if you are one of the many people who struggle with setting up a reasonable budget. Their job is to show you some areas where you can improve your financial decisions so that you can work your way out of debt.
Getting out of debt is something that is going to require a great deal of commitment. Depending on how much debt you have, this can ultimately be a long journey. So you have to visualize your goals so that you can make sure that you are working in the right direction. A credit counselor is there to enable you to do just that.
The great thing about a credit counselor is that they work with your terms. If you were to go and get a debt settlement, then there would be a lot of things that would be out of your hands. When you work with a credit counselor, they will create a solution that is tailored to exactly what you need and can afford. This makes working with a credit counselor very impactful for anyone who may be struggling with debt.
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Alternatives to a Credit Counselor
Using a credit counselor can be a great benefit to you and your family. They can give you a tailored plan that will enable you to get yourself out of debt by using a debt management plan. This ultimately takes all of your debt and combines it into one monthly payment.
However, while a credit counselor can be a great benefit, there are some other options out there that you are invited to consider. It is important to understand all of your options so that you can weigh them out and make a decision about which debt management method will benefit you the most.
Here are some of the most common debt management solutions out there that may serve as alternatives to using a credit counselor.
The end goal of a debt settlement is to negate the debt that you owe with a lump sum payment and negotiate it down so that the payment is less than what the debt was originally owed. For example, if you have $100,000 of debt and you manage to accumulate $75,000 in a savings account specifically tailored towards that debt then the debt collectors may accept that $75,000 lump sum payment and call it even.
This means that when you start working with a debt solution company, you’d be able to stop making payments on the unsecured debt that you owe. From there you’d put that money that you would be paying your debt off with and place it in a savings account that is specifically tailored towards paying that lump sum payment.
Once you have accumulated a certain amount of money in that savings account then your debt solution company will contact your debt collectors and negotiate your overall debt cost down to the amount that is saved up so you can pay the lump sum and then be out of debt.
Debt settlement can have a huge benefit on your family if you are carrying a mass of debt that at the moment seems insurmountable. There are many debt settlement companies that have managed to help families get out of debt when they thought would be carrying debt for life. Every situation is going to be different though, so many of these companies offer a free consultation to go over the specific situation that you are in and what the best plan for you will be.
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When using debt consolidation, borrowers typically take out a loan, usually secured by some asset such as your house, and use it to pay off all your credit card and any other debt they have accumulated. This is important to understand because getting into a debt consolidation program does not mean you are automatically out of debt. All that you are doing with debt consolidation is making the hill smaller to climb, which means you will be able to get out of debt faster.
The advantages of a debt consolidation loan are, first, you will have a lower interest rate and it will be a fixed rate. While the interest you pay on your credit cards can change from one year to the next, the interest on a debt consolidation loan always remains the same. This is plausible if you are consistently watching your interest compound on itself.
The second advantage of debt consolidation loans is that once you pay off all those creditors who have been hounding you, they’re now out of your life. You can relax when the phone rings knowing it’s not a debt collector calling to harass you. Most of the debt consolidation programs will offer a specialized plan that will make it easier to pay off your debt.
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If you feel your debts are out of control and there is no way to tackle them on your own, then you should definitely consider credit counseling. Professional credit counseling can help you understand your current financial situation and assist you in finding and implementing ways to improve it.
Support and assistance from a credit counselor usually goes beyond just providing advice, too. In some cases, these financial professionals will work with your creditors to negotiate your debt repayment schedules. Credit counselors may be able to get your late fees waived off or even an interest rate lowered; in some cases, they may be able to reduce the total debt balance you are carrying as well. If you’ve been struggling with these types of issues, credit counseling may be exactly what you need right now.
However, the credit counseling process is not a great fit for everyone. If you don’t want to take advice from someone or share your sensitive financial information, then you probably won’t work well with a credit counselor. In other cases, such as when you’ve lost your job and cannot really make any debt payments, it may make more sense to pursue some other strategy to address your debts. So, assess your current financial situation, and find out if credit counseling will be a good fit for you.
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