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Of course, financial distress is unsettling.
But credit counseling is there to help you, not shame you.
So what is credit counseling?
Its a valuable tool to help manage your debt and improve your financial literacy.
Heres a look at how it works and how it compares to other debt relief options.
What Is Credit Counseling?
Credit counseling provides education to help eliminate your debt with better money management.
Credit counselors may also recommend more structured debt management solutions.
Its offered by nonprofit agencies, private firms and government organizations.
These are judgment-free zones.
If you think youre in a bleak situation, credit counselors have likely seen worse.
How Credit Counseling Works
How does credit counseling work?
Its a relatively straightforward process that your counselor will guide you through.
Heres what you’re able to expect.
Initial Consultation
Youll call a credit counseling agency and review your financial situation with a certified counselor.
It may be difficult to swallow but if theres a way out, theyll find it.
Heres a quick snapshot of each.
However, it doesnt eliminate debt.
Youll still owe what you owe.
Debt consolidation combines multiple debts into a single loan, often with a lower interest rate.
However, this usually requires a good credit score.
It can even dramatically improve your credit by lowering your overall credit utilization.
Debt settlement, on the other hand, involves negotiating with creditors to reduce the total debt you owe.
That may sound fantastic, but yourcredit scorecan take a hit with this strategy.
Thats because youll typically need to stop paying the minimum to pressure your lenders into negotiating.
Your credit score will freefall and take potentially many years to repair.
you could make a run at settle debt yourself or pay a company to do it for you.
Who Should Apply for Credit Counseling?
There are several scenarios where credit counseling is a good, even vital, idea.
Ask yourself the following questions:
If you answered yes to these, you might be a good candidate.
Credit counseling can serve anyone who wishes to improve their credit and financial habits.
Some are downright predatory.
Beware of agencies that charge high upfront fees or make unrealistic promises.
If youre dealing with a for-profit company, it may not have your best interest in mind.
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