What Is Credit Counseling?

Free, personalized financial advice that comes with no strings attached: in the words of one expert, “no hazards.” It is not unreasonably cheap. Personal financial experts claim that credit counseling services might be a risk-free lifeline for all sorts of consumers in light of the COVID-19 epidemic. And a lot of the businesses which provide it are boosting up their outreach initiatives. Jim Triggs, CEO of Money Management International, a nonprofit provider of financial counseling, says, “there are no risks to taking the financial advice offered during credit counseling.” According to Triggs, the use of this free counseling service is strictly for you and the credit counseling agency; we will send no information to the credit bureaus without your permission.

Debt counseling is frequently provided by charitable organizations and is either free or inexpensive. For instance, Consolidated Credit introduced its Shutdown Hotline, a free phone service that provides debt analysis and referrals to COVID-19-specific solutions. Additionally, the National Foundation for Financial Counseling (NFCC) is giving free credit counseling services in response to the epidemic to help consumers. According to spokesperson Bruce McClary, the organization is focused on assisting people in obtaining “a little amount of breathing room” for short-term comfort.

If you’re interested in credit counseling, we’ll explain how to select a reputable service and what to anticipate from the procedure. We’ll also offer insightful advice from professionals in the field on how to maximize the benefits of credit counseling.

Credit counseling prioritizes a debt management strategy based on education. Contrast this to services like debt settlement, where for-profit businesses negotiate a debt settlement on your behalf in exchange for substantial fees. The ultimate objective is to provide individuals with the knowledge and tools necessary to manage their financial situation and, more significantly, to make wiser decisions in the future. According to Anthony Carlton, an independent financial adviser at LearnLux, a firm that develops online financial literacy tools and information, “We’re lacking the information and education we all need to control our finances and feel good about doing it.” Money is the top cause of stress for Americans; therefore, there needs to be a significant change in how we impart knowledge about wise financial management. The answer is simple for Carlton: more access to economic guidance.

It’s a prevalent fallacy that credit counseling only works if you have a specific amount of debt. The opposite is true, as you can see. The San Diego Financial Literacy Center’s director of community outreach and the presenter of the personal finance podcast “Talk Wealth To Me,” Chase Peckham, asserts that “everyone has the potential to benefit from a credit counseling process with a qualified credit counselor.” “A trained credit counselor will look through your budget with you to find areas where your spending may be greater than you expected. They will also review some savings techniques and, if necessary, offer advice on how to pay off debt.”

Credit counseling is always beneficial, regardless of whether you require a debt management strategy or want suggestions on handling your money more effectively. However, people who are heavily indebted at high-interest rates or many months behind with their payments benefit most from this service. At the end of 2019, 4.7% of all consumer loan balances were at least 30 days past due, and roughly two-thirds of these liabilities were more than 90 days past due, according to the Federal Reserve Bank of New York. According to the report, approximately 9% of credit card debt balances were at least 90 days past due.

Therefore, it should be no surprise that the bulk of clients seeking credit counseling are dealing with credit card debt, claims Peckham. Credit counseling can provide several alternatives for those with significant credit card debt, including professional assistance and debt management strategies.

How to select your credit counselor

Accreditation is important when selecting a credit counseling organization. The National Foundation for Credit Counseling and the Financial Counseling Association of America spring to mind for Anthony Carlton. When looking for a trustworthy credit counselor, Carlton suggests looking for the letters NFCC and FCAA, as they are the two major independent certifiers of credit counselors. It’s also vital to remember that specific credit counseling organizations focus on particular debt categories. For example, Chase Peckham explains that at DebtWave, “we specialize in aiding people in paying off credit card debt.”

“Our team can offer tools and advice, but we can’t help beyond putting them in the right direction for those customers who are also battling with school loan debt or auto payments.” A credit counseling service with knowledge in those areas should be sought after considering the forms of debt you deal with the most.

Other Credit counseling options

There are alternatives to credit counseling that may be sought in addition to financial counseling, even if it is a reasonable initial step for many debt repayment solutions. One choice is debt settlement, a service provided by businesses (often for profit) in which they try to settle your debts for a lesser sum in exchange for a fee. But nothing in the debt-settlement procedure is inevitable; it sometimes takes years to complete and can negatively affect your finances and credit. Loans for debt consolidation are an additional choice. This can be a suitable fit if you have several high-interest loans that need substantial monthly interest payments and keep you from reducing the principle.

To pay off and cancel your previous high-interest debts, these loans entail taking out a solitary low-interest loan. As with any loan type, people with higher credit scores will receive more favorable interest rates; those with lower credit scores could be forced to put up collateral to secure the loan, which increases the risk.

Finally, for specific persons with exceptionally high debt-to-income ratios, filing for bankruptcy may be their best option. Remember that receiving credit counseling is a requirement before declaring bankruptcy. A list of nonprofit credit counseling organizations authorized to provide pre-bankruptcy counseling is kept up to date by the U.S. Department of Justice. Make sure you benefit more from the connection with a credit counseling firm if you decide to enroll in a debt management plan with them. Throughout the term of your DMP, a competent credit counseling agency will offer continuing guidance and instruction to help you learn how to handle your money more wisely in the future. It’s time to look around for other credit counselors if the agency can’t guarantee this level of help. According to Jim Triggs, “Credit counseling may provide clarity and direction when facing financial issues, but we are constrained when our clients don’t divulge crucial information or when they wait too long to approach us. You must be willing to arrange yourself better and put in a lot of effort to achieve your objective.