1. What is credit counseling?
Credit counseling is a professional counseling service which educates consumers on how to manage their credit and finances better. Such a service helps you to repay debts through negotiation with creditors. Know more...
2. When do I need credit counseling?
You need credit counseling if you're in any of the situations given below:
- Your credit balances exceed your income
- It's hard to make the minimum monthly payment on your debts
- You don't even know how much you owe in all
- You're using credit cards for daily expenses
- You're getting creditor calls for not making bill payments
- You're using one credit card to pay off another
- Creditors are not increasing your credit limit
- You're applying for cash advance to get some cash
3. How can credit counseling help in paying off my debts?
Credit counseling agency employs counselors whose job is to identify the reason of your financial crisis and provide a practical solution to come out of it. They’ll take into consideration your monthly expenditures and income, and plan a personalized budget for you. In this way you'll have a proper understanding of your finances and can pay off your debt. In some situations, one of the options they can offer is enrollment into a debt management plan.
4. What is a Debt Management Plan or DMP?
A DMP allows you to consolidate your unsecured debt into one simple monthly payment. Other than being a convenient option in paying your debts, it can result in substantial savings on interest with time.
5. What are the benefits of DMP?
The benefits of DMP reasonably include:
a. Elimination of late fees
b. Reduction of interest rates.
c. Lower monthly payments
d. Education of finances
6. How much can I save through a credit counseling agency's debt management plan?
Debt management plans doesn't promise a fixed amount that one can save. It totally depends on personal situations. In general, an average client's credit card interest rates were reduced from an average of 24%-10%, saving them approximately $186 in interest every month in the first year of their enrollment. This will give you a free state of mind and you will be able to save again.
7. How do I find a good credit counselor?
Just like you buy other things only after comparing it with all possible options, shop around for a counselor. You should avoid companies who charge hefty fees with a promise of solving your problem quickly. There is no such possible magic trick.
Get the facts clear. Everything should be disclosed upfront. The service should provide budgeting advice and education.
You shouldn't fall for the namesake non profit. Non profit doesn't mean cheap or affordable, or good. You need to delve beneath the surface.
The counselor must spend an appropriate time with you in understanding your financial hardship. He should be very patient. These are few qualities you must look for while choosing the correct credit counselor or credit counseling agency.
8. What happens at a session with a certified consumer credit counselor?
The consumer credit counselor will review your financial situation in a non judgemental way and provide all the possible solutions. They will help you develop a budget, keeping in mind your monthly incomes and basic expenditures. You'll be able to pay your creditors with the help of that budget.
9. Are the counselors qualified?
The counselors that deal with your financial issues are well read about the theories, principles, issues, counseling techniques, and the forms that are applicable to credit and financial counseling.
10. What should I ask the credit counselor?
Following is the list of queries that you must ask your counselor:
a. How do you decide upon the amount of payment?
b. How will I come to know if my creditors have received the payment?
c. Can you negotiate with my creditors to lower or eliminate interest and waive off late fees?
d. Is the debt repayment plan my only option?
e. Who will be responsible if I've problems with my accounts or creditors?
11. What should I carry to my credit counseling session?
You would like to discuss about your finances in detail with your counselor. You must carry few things in a session with your counselor:
a. Your credit card statements
b. Your current pay stub or proof of income
c. The list of questions for your counselor
d. Any kind of correspondence you had with your collection agency or the I.R.S.
e. A list of your sources of your monthly expenses and income sources
12. Can the counselors offer legal opinion on my options?
The counselors only guides you about handling your finances. They can't offer any legal solution. Only an attorney can provide opinions about legal issues.
13. Will credit counseling affect my credit score?
Credit counseling will not affect your credit score directly. However, the fact that you are taking up DMP to pay your debts would be mentioned in your credit report. A debt management plan usually takes 3-4 years. It would be stated in your credit report that you're paying an account through a credit card agency and it remains until the account is paid in full. However, This might affect you in obtaining any new credit. Although, it's not obvious and can't be predicted.