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Consumer credit counseling services help overextended credit users eliminate high interest rate credit card debt. It’s their mission to help you regain financial stability. Certified credit counselors evaluate your debts, budget, and credit. Then they help you identify the best way to get out of debt in your situation.
If you can’t pay off your balances on your own, they can also help you enroll in a debt management program (DMP). In this case, the credit counseling agency acts as a go-between for you and your creditors. They set up a repayment plan that everyone can agree on. Then they negotiate to reduce or eliminate interest charges.
These services are also called debt counseling and financial counseling. The terms are roughly interchangeable.
There are two types of credit counseling – for-profit and non-profit. The difference between the two is how they earn revenue. For-profit agencies earn revenue through fees. That means their plans tend to be more expensive for the consumer.
By contrast, non-profit agencies are supported through grant money. Credit card companies provide grants to non-profit agencies can help their customers get out of debt. This means lower fees for the consumer. In fact, non-profit agencies offer a one-time evaluation entirely for free. They only apply fees to set up and run a debt management plan.
For most people who are struggling to achieve stability, non-profit counseling is the better option. You pay fewer out-of-pocket costs, which can be helpful. That last thing you need right now is a big bill. If you’re looking for a non-profit counseling organization, we can help. Debt.com only refers people to the best accredited non-profit consumer credit counseling services.
A common problem when people face financial challenges is that they don’t know what solutions to use to overcome them. Until you get into debt, you don’t know all the options available to get out of it.
Certified credit counselors understand all the solutions available. So, they can help you assess which one is right for your unique financial situation. Although you can start the process online by filling out a form detailing your situation, a credit counseling session is usually done over the phone.
To start the process, the counselor will ask for some basic information about your financial situation. This includes:
To complete the picture of your finances, the counselor will aks to run a credit check. This allows them to review your report to see if you have collections or other items of note. This is a “soft” inquiry, so it does not impact your score.
Once they have a good picture of your finances, the counselor makes recommendations for debt relief. This can include:
Nonprofit counselors are required to review ALL your options.
They only recommend the best solutions for your situation. In other words, nonprofit agencies don’t try to “sell” their program. This makes counseling the best way to find a solution that fits your needs. You can get an unbiased, expert opinion about what you need to do to take control of your finances. You can ask questions about different solutions and learn how to minimize things like credit damage.
Both for-profit and nonprofit agencies can help you enroll in a debt management plan. Nonprofit organizations only recommend a program if it’s the best option for you; otherwise, they tell you where to go.
If a DMP is the right option, you can enroll through the same agency that evaluated you in Step 1. Here’s what you can expect:
Enrollment in consumer credit counseling is 100% voluntary, so there’s no requirement to include all your cards. Most counselors will tell you to include everything. However, some people decide to leave a card out of the program for emergencies; if you decide to include that account later, you can talk to your counselor to add it in. All accounts included in the plan will be frozen during your enrollment.
Together, you set a monthly payment you can afford to make. This single payment will cover all the accounts that you include in your DMP. The counselor will also help you set up a formal budget if you don’t have one already. The goal is to ensure you can comfortably afford your monthly payments and your other expenses, so you won’t have any issues living without relying on plastic.
Your counselors will reach out to each of your creditors. They have three goals:
This will help prioritize which balances get paid off first. Each creditor must sign off to include their account in the program. You will receive acceptance letters from each creditor saying they agree to the terms of your plan.
You make one monthly payment to the counseling organization, then they distribute the payment to your creditors as agreed. Payments are usually handled through Direct Debit from your checking account. It’s rare that an agency will accept payments online or by check. However, you usually have access to an online portal that tracks your progress and provides more information if you encounter any trouble. You still
Your organization should also provide free resources you can use to build financial literacy. The goal is to help you learn how to avoid financial hardship in the future and plan for long-term financial stability. You should recieve information on how to budget, save, plan for financial challenges. The idea is that the counseling team helps you become a better money manager. That way, once you get out of debt, you can stay that way.
If you run into trouble during your program, you can talk to the counseling team to make special arrangements. They may be able to help you make arrangements to delay your payment without jeopardizing your plan entirely. They are basically there to be a financial coach and provide assistance to ensure you can graduate from your plan successfully.
Enrolling in a DMP through a credit counseling agency is not a magic cure-all. It won’t work in every situation for every type of debt. Even when it comes to unsecured debt, you need a specific set of circumstances for this to work. Those circumstances are pretty broad, but they don’t apply to everyone.
Your credit score is not a factor in qualifying for credit counseling. The initial consultation, even with a credit check, won’t affect your score. There is no minimum score requirement to enroll in a debt management plan. In addition, when done correctly the program has either a neutral or positive effect on your credit. In other words, if you still have good or excellent credit, this program won’t set you back.
It’s also worth noting that working with debt counselors won’t negatively impact your ability to qualify for new financing. Even if you enroll in a DMP, you can still get approved for loans, such as a mortgage or an auto loan. You can’t open new credit accounts during enrollment. However, you can get approved for major financing to purchase a home or car or to fund higher education. This way, you don’t have to put your life on hold while you pay off your credit cards.
This really depends on the agency you work with and what they offer. In some cases, a for-profit company pairs counseling and credit repair. To do this legally, that means that they have both certified credit counselors and state-licensed credit repair attorneys on staff. In this case, they help you eliminate your debt and then help you dispute any lingering mistakes in your report.
Other for-profit agencies may continue to work with you to improve your financial outlook. These agencies trend more towards financial counseling, rather than just credit or debt counseling. They add components of financial planning into the mix, which help you build better long-term strategies.
However, outside of these types of package services, there is little difference with the actual debt management service provided. If money is already tight and you can’t afford the bills you have now, there’s little reason to add another. You’re usually better off going through a nonprofit organization to keep fees low and ensure your plan is affordable.
Article last modified on August 7, 2019. Published by Debt.com, LLC