Are you one of the many who lost their job, had reduced hours, or seeing freelancer gig going utterly flat because of COVID19? You are not alone; most of us have seen our financial situation changing for the worse. If you are dealing with a lot of debt or you are struggling to keep up with your payments, then credit counseling might be right for you. In this article, we’ll talk about credit counseling and how it can help you with your financial situation.
What is credit counseling?
Credit counseling agencies help people understand the options available to them to manage their finances better and to eliminate unsecured debts such as credit cards. They usually offer other services like debt management, bankruptcy counseling, student loan counseling, housing counseling, and homebuyer education.
Most credit counseling agencies are also called Consumer Credit Counseling Service (CCCS), which are non-profit organizations, and they are usually members of the National Foundation for Credit Counseling (NFCC). They provide some free services as they receive a grant from credit card companies to help their customers get out debt. However, some so-called “non-profit” can ask you to make “voluntary” contributions, charge a high fee for their services, or even charge to mail information to you. Those are red flags telling you that you are not dealing with a reputable non-profit credit counseling agencies.
Is it Ok for a credit counseling to charge fees?
As stated above, most services are free, like free credit counseling and budget counseling. For example, if you need a debt management plan or debt relief program, then they usually charge a small fee like $40 to set up the plan and $5-$50 per month, depending on how many accounts you have.
What should you do before using a credit counseling agency?
Here are some questions you can ask to vet them out:
- Are they a member of the NFCC?
- How long have they been in business?
- Are they licensed in my state?
- What are their fees?
- Would they wave the fees if I can’t afford to pay them?
- Are their counselors accredited or certified?
- Do they sell my personal information?
After that, we will recommend getting a list of agencies and then check your local consumer protection agency to find out if there are complaints about them before making your final decision to work with a specific one. You can also check if they are a member of the NFCC by going to their website https://www.nfcc.org/agency-locator.
What should you expect during your first counseling session?
During your first counseling session, the counselor will ask you about your financial situation like your income, monthly expenses, credit card balance, current debts such as a mortgage, auto loans, and medical bills. After that, they will order your credit report and then review the options available to you based on your financial situation and debt.
Your available options may be:
- Debt Management Plan or DMP
- Balance transfers
- Loan consolidation
- Debt Settlement
The counselor should not pressure you to select an option but rather to help you identify the right solution based on your needs.
When do you need credit counseling?
- If you need on managing your money and debts
- You are living paycheck-to-paycheck
- If you owe more than $5k, mostly credit card debt in multiple cards, and you are having a problem keeping up.
- You have debt in collections
- Need bankruptcy counseling
- Help with lowering or consolidate your student loans
Would credit counseling hurt your credit?
Working with a credit counseling agency doesn’t directly affect your credit. However, when you are in a debt management plan, it can hurt your credit score as they usually ask you to close some of your credit cards, which will limit your available credit. Having less credit or consolidating all your balance in one card will increase your credit utilization ratio, which is used to calculate your FICO score. Click here to read more about how the credit score.
Credit counseling can’t do miracles, but it can be a good option whether you have a question about managing your finance, set a budget, get out of debt.