Sometimes, bankruptcy can be your only option if debt becomes overwhelming. You can’t get rid of all of your debts through bankruptcy, despite the drastic nature of the process and its long-term impact. A bankruptcy does not affect many student loans. In some cases, it may be psychologically important to pay the debts.
A credit counselor can be of assistance if you need to dig your way out from debt. A credit counselor can be a good choice, but it is important to choose a reliable professional who can help, and not a scammer that will try to sell you “management” products that could harm your credit.
What is credit counseling and how can it help you?
Credit counseling allows you to create a budget, learn about money management, and then eliminate your debts with the assistance of a credit counselor.
One-on-1 sessions are where you share details about your finances with the counselor. This includes information about income, debts, and any other relevant aspects. The counselor uses the information to help you choose the best course.
Many non-profit agencies offer this type consultation free of charge. However, some might charge a small fee (normally under $100). This is the largest nonprofit credit counseling agency. It can help you tackle your debt.
Is counseling going to affect my credit scores or credit history?
No. The only thing that will affect your credit scores or credit history is speaking with a debt counselor. If your counselor suggests a debt management program (or DMP), it is possible for your credit score to be affected. DMPs, or debt management programs, allow your counselor the authority to make payments on your behalf. To pay off multiple creditors, for example, you can simply send a lump payment to your credit advisor, who will then decide how that money will be used to pay your various debts. Note that your credit score may drop after you complete a DMP.
Do not let credit counselors pressure you into signing up for a DMP until they have more information about your individual situation. DMPs might be beneficial for certain consumers. However, they are not right for everyone. Your counselor should not push you to sign up if you do not feel that it is right for you.
How do you find a credit advisor?
The NFCC, National Foundation for Credit Counseling (NFCC), is the best site to start your research. This credit counseling agency has been around more than 60 year and is the largest accreditor in the country. You can access the directory of counselors near you. You can also choose one who specializes within the area that you are most in trouble (e.g., credit cards and mortgage payments).
Be wary of scams
When bills pile up, and collectors start calling you, often all you can focus on is getting help. Scammers recognize this and take advantage of desperate people to make a quick profit.
There are many companies out there that promise quick and easy ways to get you debt free. However, their actual repayments to your creditors will be less than what you owe. You should be wary of any company that promises to take you out of debt, without you paying the full balance of your debts, and who asks you to pay up front for their services. You should also be wary of credit counseling agencies that claim to be “nonprofit”. This does not mean their services are free or affordable.
You shouldn’t enter into any agreement or program until you fully understand the rules, risks, and fees involved. Companies that specialize in debt consolidation must provide you with details about their terms, pricing, and expected results. You also have to be aware of the consequences if you don’t pay your debts.
There are many red flags, so be careful if you see one:
- Offers to pay money before they offer you any services.
- Offers to erase your debt or fix credit report errors that sound too good be true.
- Claims that it is true can alter credit reports.
- Asks for you to pay them large monthly service charges or to turn over a significant portion of the money they claim that you will save.
- Wants to you to pay them in lieu of your creditors.
- Requests that you apply for an Employer Identification Number.
Keep an eye out for credit counsellors who promote debt management as the best option.
If you feel that a credit counseling agency isn’t up to par, you can file a complaint with the Federal Trade Commission or your local attorney general.