A credit counselor is a financial professional who helps people with debt management. They can help you create a budget, negotiate with creditors, and develop a debt repayment plan. Credit counselors can also provide financial education and counseling to help you improve your financial literacy. We’re going to walk through the specific services they offer, the benefits of using one, and also the drawbacks to consider as you make your decision.
Credit counselors offer multiple services to help you pay off debt.
The primary service people go to credit counselors for is a debt management plan (DMP), or a formal agreement between you and your creditors to lower your interest rates and monthly payments. In exchange, you agree to make a single monthly payment to the credit counseling agency, which will then distribute the money to your creditors.
Some credit counselors offer debt settlement services, which involve negotiating with your creditors to settle your debts for less than you owe. However, debt settlement can have negative consequences for your credit score.
Other services credit counselors offer include budgeting help and credit education. Credit counselors can help you create a budget that fits your income and expenses. They can also help you track your spending and make sure you are staying on track. When it comes to credit education, credit counselors can provide you with information about credit, how to improve your credit score, and how to avoid debt in the future.
The benefits of working with credit counselors.
There are many advantages when it comes to working with a credit counselor, and if you’re facing debt that you cannot afford and are struggling to meet your minimum payments, it could offer you some viable solutions.
Credit counselors can negotiate with your creditors to lower your interest rates, which can save you money on your monthly payments. Similarly, a debt management plan (DMP) can help lower your monthly payments, which can make it easier to afford your debt.
If you make all of your DMP payments on time, your credit score can improve in the long-run. And finally, credit counselors help you improve your financial literacy and avoid debt in the future by providing you with financial education.
The drawbacks of using a credit counselor.
Credit counseling is ultimately a for-profit industry, so one of the biggest drawbacks is the fees. Credit counseling agencies typically charge fees for different services that can range from $50-100 a month on average.
Although a DMP will eventually help your credit score, in the short-term, it can have a negative impact. This is because your credit report will show that you have defaulted on your debts. However, your credit score can improve over time if you make all of your DMP payments on time.
If you are considering using a credit counseling service, then be sure to choose a reputable agency and ensure they don’t have any complaints against them with the Better Business Bureau or the National Foundation for Credit Counseling. Additionally, compare fees before you choose an agency and ensure they offer the services you need.
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