Are you tired of living with debt? If you’re seeking solutions to help you find relief and get back on track financially, there’s hope. A credit counselor can review your finances with you and devise a plan of action to get out of debt so you can improve your financial health, credit score, save more money and meet financial goals. Read on to find out how to get help and where to find free credit advisors.
What is Credit Counseling?
Credit counseling is generally offered by nonprofit organizations. It is designed to help consumers more effectively manage their money, pay off debts faster and resolve other common financial issues.
Free Credit Advisors vs. Paid Credit Advisors
Many nonprofit credit counseling agencies offer free sessions to help you map out a plan of action to get back on track. However, some charge fees for services you can get for free elsewhere.
How Much a Credit Consultant Charges in Average?
It depends on the services you receive. You can get free credit counseling, but there are fees associated with debt management plans (DMPs). More on that shortly.
Types of Credit Counseling Services
Most credit counseling agencies offer these services:
Debt Counseling
Debt counseling involves working with a credit counselor to review effective debt elimination strategies suitable for your situation. They could suggest that you adjust your budget to free up funds for debt payoff, a debt consolidation loan to secure lower interest rates or a DMP, just to name a few.
Debt Management Plan
A Debt Management Plan is a tool credit counseling agencies use to help you eliminate the balances on unsecured debts faster. Eligible debts include credit card and retail store debt, personal loans, payday loans (in some cases) and in-store credit lines.
Here’s out it works:
- Step 1: Enroll in a DMP and work with a credit counselor to come up with an affordable monthly payment.
- Step 2: The credit counselor notifies your creditors of your enrollment in the program and the proposed repayment schedule. They will also negotiate with your creditors to secure concessions during this step, including penalty waivers and lower interest rates.
- Step 3: Make one monthly payment to the credit counseling agency instead of paying creditors. They will divide the total and pay the creditors per the payment schedule.
- Step 4: Rinse and repeat until all debts under the DMP are paid in full. (Quick note: as debts are eliminated, the monthly payment amount does not change. Instead, the credit counseling agency increases the payment to other accounts that remain under the plan).
While a DMP can help you meet your debt payoff goals without ruining your credit score, there’s a drawback you should consider. Most credit card companies will close your accounts if they agree to a lower payment under a DMP.
Bankruptcy Advice
If your debt load is overwhelming, you may be considering bankruptcy. Your credit counselor can also suggest that you consult with a bankruptcy attorney to determine if it’s the most viable option before you file.
If you decide to move forward, you’ll have to undergo mandatory pre-bankruptcy counseling. It usually spans 60 to 90 minutes, and you’ll be assessed a fee of around $50, depending on your state of residence.
Housing Counseling
If you’re in the market for a new home, you can reach out to a housing counselor to learn more about the home buying process and how a new home could be a sound financial investment. Many nonprofit credit counseling agencies also have housing counseling resources and free credit advisors to help financially distressed homeowners get current on mortgage payments and avoid foreclosure.
What Happens in a Credit Counseling Consultation?
Here’s what you can expect when you sign up for credit counseling:
- Step 1: A credit counselor will contact you to schedule a counseling session.
- Step 2: During the initial session, the credit counselor will review your finances by conducting a budget and debt analysis to assess your financial health. They will also speak with you to determine the culprit for your financial challenges. (Quick note: In most instances, the credit counseling agency will want to perform a soft credit check to analyze your credit profile and determine the status of your credit health. Soft inquiries do not affect your credit score).
- Step 3: Based on the results of their analysis, the credit counselor will recommend solutions to tackle your debt and money management challenges. One possible remedy is a DMP, which helps you get out of debt faster without tanking your credit score.
- Step 4: If you decide to enroll in a DMP, the credit counselor will notify you of the next steps. Otherwise, you can ask any additional questions you may have so you’ll be prepared to execute the plan of action and begin resolving your financial issues.
