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How a Credit Counselor Can Help You Become Debt Free

 

Sometimes you might feel overwhelmed with the bills and more so if you have pending debts that needs to be paid. Worry not since you could become debt free by simply hiring a credit counselor and enjoy the benefits.

Credit counseling is designed to help consumers who may be struggling with money problems simplify their repayment process. This should make it easier to reduce, and ultimately eliminate the debt.

A credit counselor helps you navigate your financial challenges by assisting you to draft a good debt counseling plan. This plan includes budgeting to help you adjust according to your income, expenses and bankruptcy.

Often times, you might find yourself in over your head with an overwhelming debt. This can get out of control and quickly change into a situation that you have no idea of how to handle.

There a few reasons that can cause delay with your debts:

  • Unexpected medical expenses
  • Decrease in your income
  • Loss of a job

However, you don’t need to be ashamed of debt that has gone out of control. You can always have a fresh start and one way to do that is file for bankruptcy. Filing for bankruptcy can create a drag or damage your credit score. It is thus advisable to get financial advice from a credit counselor.

You can take advantage of the existence of credit counseling agencies like Freedom Debt Relief’s program. This helps navigate a good financial plan that will help you budget on your income by cutting down expenses in order to pay off your debt.

What is Credit Counseling?

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Credit counseling aims at helping people take control of their finances. A debt settlement company provides the clients with customized counseling and setting up debt management plans to help them become debt free. Arranging and negotiating favorable settlements with lowered interest rates, and monthly payments of debts to creditors usually achieve this.

Credit counseling is done by credit counseling agencies. However, they are often empowered by a contract that acts and negotiates on behalf of you as a debtor with your creditors. This helps you resolve a debt that could be long overdue or beyond your abilities to pay. In some cases, the regulations of credit counseling and agencies vary. For example, in some states, individuals filing for chapter 13 bankruptcy are required to undergo counseling.

What You Need to Know If You’re Considering Credit Counseling

Mostly, a debt management plan doesn’t directly affect your credit scores; nevertheless, there are a few features that could impact your credit history in the process. Here are two reasons explaining how getting a credit counselor can impact your credit scores.

  1. Will credit counseling appear on your credit report?

Credit counseling creates a debt management plan which helps you pay off your debt. The financial advice given by the credit counselors helps you avoid drastic measures like bankruptcy. Ideally, credit counseling makes it easier to pay off your debt by simplifying your repayment process.

With a good management plan, you are able to make payments to the agency for all your eligible debts. The agency later subdivides the amount and pays your creditors directly. Credit counselors can negotiate lowered interests rates and reduced monthly repayments, which in return save you money. Although, when you pay your debt through a debt management plan, it can negatively reflect on your credit reports since your creditor may add a comment to the account.

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This can cause a problem for you with the future lenders when running a credit check during the application process.

  1. Will credit counseling affect your credit?

Credit counseling to pay off your debt often includes various processes and this could influence your credit score. For example:

Closing of accounts: When drafting a debt management plan, the credit counselors may require you to close your credit cards to ensure you don’t rack up and accumulate more debt. Certainly, this reduces your available credit thus affecting your credit utilization. The utilization ratio represents and makes up your credit score. A higher utilization rate causes your credit score to drop drastically.

Also, closing credit accounts affects your length of credit history because they stop aging. Unfortunately, this could interfere with your future credit growth.

Your payment status: The debt management plan sets up your payment status determining your credit card score is affected. In most cases, the credit counselor negotiates for you to pay less than what you owe. This could negatively affect your credit score despite the account being reported as settled because you didn’t pay what was initially agreed.

It’s important to stay on top of your payments plan even with the help of a credit counselor. Typically, it’s also important to understand when the credit counseling agency will begin to make the payments on your behalf. This allows you to make payments while you await the transitioning of your accounts to a debt management plan. It ensures you do not miss a payment which can impact your credit score negatively.

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Benefits of Credit Counseling

  • Lowers interest rates on your debts
  • Eliminates late fees and additional charges
  • Consolidates loans into one monthly payments
  • Reduces the amount of debt settlement
  • Reduces the time of debt settlement
  • Saves money due to lower interested rates
  • Helps in general budgeting
  • Offers housing counseling
  • Provides bankruptcy counseling
  • Pinpoints the mismanagement of funds and gain control of your finances
  • Maintains a good credit score
  • Arranges repayment plans with the creditors
  • Gets rid of creditors harassment
  • Acquires new credit

Is Credit Counseling a Good Idea?

Credit counseling has many benefits as well as disadvantages. It’s important to evaluate your situation and determine whether you need a credit counselor.

Below are some reasons to consider:

  • The debt management plan only works for certain debts like personal loan or credit card debt
  • Other debt settlement options could make more sense
  • Debt management plans have a set up fee.

A good financial advice helps you introduce a feasible budget plans and avoid incurring debt situations. Nonetheless, it’s important to find a good credit counselor from a certified credit counseling agency to provide you with customized services for your debt problem.