Credit counseling Will Help You Improve Your Finances, This Is Why
Credit counseling is one of the most recommended debt solutions in America, especially for debtors filing for Chapter 13 bankruptcy. Before visiting a credit counseling agency, you ought to know if credit counseling works. This post answers the questions, “does credit counseling work?” What are the benefits of visiting a credit counselor? Is It Right for me?
Like general psychotherapy, there are a lot of criticisms on Credit Counseling. Some critics accuse debt counseling agencies of predatory practices, which is defined as “imposing unfair and abusive loan terms on borrowers”.
According to a 2006 audit report from the office of inspector general (IG) of the Federal Deposit Insurance Corporation (FDIC).
These predatory practices include; charging exorbitant fees, failing to meet expected standards, inability to proffer practical solutions for debtors, and deceiving clients.
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Every field has its own bad eggs, and credit consulting is not an exception.
However, the red flags should not deter you from seeing the benefits of credit counseling, a field that was created with the purpose of helping debtors get rid of credit card debt.
What Are the Benefits of Visiting a Credit Counselor?
There are four major functions of a debt counselor, namely; debt management, budgeting, education, and tools application.
To paint the full picture of what each function entails, I’ve provided a bulleted list of mini-functions under each head-function.
Debt Management Benefits
- Evaluates the client’s total financial case by reviewing monthly wages, properties, credit card debts, expenses, credit reports, or other financial information.
- Develop debt management plans (DMP’s) and budgets to help clients meet their monetary goals.
- Drafts debt repayment dates in favor of clients.
- Recommend methods, such as adjusting budgets, applying for debt management plans, using personal loans, or declaring bankruptcy.
- Speaks to clients by telephone or physically to garner more financial data.
- Prepare documents to solidify legal contracts after getting a go-ahead from the client and creditor agency.
- Update records of the client’s account activity, like correspondence, financial transactions, or counseling session notes.
- Direct clients to community services or resources in cases beyond credit counseling.
- Evaluate the duration for Credit card debt repayment using the volume of debt, interest rates, income, and savings.
- Negotiate with creditors agency on behalf of clients to help adjust payments, reduce interest rates, extend payment duration, or devise a better DMP.
Budgeting Your Money to Pay Off Debt
- Evaluate the financial capacity or status of clients.
- Devise actionable methods to help clients pay their credit card debt, obtain permanent housing or mortgage programs.
- Creates monetary plans for clients while making debt repayment a priority
Financial Education to Avoid Getting in Debt
- Informs clients on financial issues, such as consumer protection laws, credit report ratings, wage attachments, bankruptcy laws, or collection actions.
- Recommends way forwards on housing issues, like mortgage delinquency, housing rental, and homeownership.
- When it comes to financial planning, credit or budgeting, debt counselors recommend educational materials for clients.
- Explain federal policies to clients, such as the DMP rules, the pros, and cons of enrolling in debt repayment plans, or lender concession policies.
Tools and Apps To keep You Debt Free
- Studies financial records for missing cheques, payment history, returned cheques, held money, or other similar cases to resolve client’s issues.
- Releases funds to creditors on behalf of clients.
- Oversees the foreclosure, repossessions, or removal of levies.
Best Credit Counseling Agencies in America
Credit counseling is a legit practice in America. Credit counseling society is dominated by non-profit organizations and Christian/religious entities.
The idea of credit counseling was spearheaded by lenders and credit agencies during the mid-’60s in a bid to curb the continuous outbreak of personal bankruptcies.
Even though there’s a difference from nation to nation or within a nation, consumer debt is basically made up of credit card debt, car loans, and home loans.
Credit counseling aka debt counseling deals with consumer debt, which isn’t in the client’s capacity to pay.
Aside from educating the client and creating a proper budget that suits the client’s income, credit counselors assist debtors in devising a debt management plan aka DMP.
In the United Kingdom, DMP is also known as IVA, an Individual voluntary arrangement.
For a DMP to be effective, the client has to give the credit counselor the mandate to negotiate with the creditor(s) on the behalf of the debtor.
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The aim of negotiation is to reduce the interest rate, extend payment date, lower monthly minimum payment, and waive outstanding late charges.
After the agreement has been made, the debt would be consolidated into a single payment, depending on the case at hand.
Not all debt cases demand a DMP or IVA, some debt counselors would go as far as negotiating debt relief or debt consolidation.
Does Credit Counseling Work: A Critic’s Perspective
Critics around the globe have criticized credit counseling, on the basis that the idea originated from credit agencies, who wanted to prevent debtors from seeking better alternatives.
Predatory practices include demanding unlawful or exorbitant fees, inability to meet the required standard, inability to proffer actionable solutions for clients, and neglecting the debtor’s interest in favor of the creditor.
Regulations Protecting Americans from Predatory Practices
The society of credit counselors is loosely regulated by the Federal Trade Commission (FTC) in America.
The FTC is the nation’s debtor’s protection agency, which can slam credit agencies with a lawsuit for deception, extortion, and offenses of any nature.
Though the federal government has created policies protecting debtors, individual states may also regulate DMPs.
The attorney general of the state has the power to protect citizens from predatory practices.
There are two major associations representing the interests of creditors, namely: the Association of Independent Consumer Credit Counseling Agencies and the National Foundation for Credit Counseling.
Like I noted earlier, the major benefit of enrolling for credit counseling is guidance.
To get the most out of credit counseling, you ought to be attentive to every debt solution proffered by the credit counselors.
Then, you can decide to opt-in for DMPs, debt relief, debt forgiveness, or bankruptcy.
With respect to education, tool application, Student loan Debt, debt management, and budgeting, debt counseling works.
It is also important to know that the debt counselor is not a magician: he/she can only persuade creditors to reduce the interest rates or extend the payment date, but the final decision lies in the hands of your creditors.
Though, most creditors prefer DMPs to bankruptcies.