Credit Counseling
Credit counseling may seem like something that is beneath you, but you may be amazed by the benefits.
This alternative Debt Relief Option is also known as a Debt Management Plan. This involves enrolling into a program that will provide you with a debt counselor.
As explained by the Consumer Financial Protection Bureau (CFPB), credit counseling organizations can advise you on your money and debts, help you with a budget, and offer money management workshops.
It lists the following as to how credit counseling helps:
- Advise you on managing your money and debts
- Help you develop a budget
- Help you get a copy of your credit report and scores
- May offer free educational materials and workshops
- Organize a “debt management plan” to pay down your debts
Beware that there may be fees for credit counseling. If there is a fee, many outfits will provide you free information about their services for you to review before you make a decision.
They will consider all your debts and pay the creditors out of an account that you fund. They will also negotiate lower interest rates on your behalf.
Understand that credit counselors usually do not negotiate any reduction in the amounts you owe–instead, they can lower your overall monthly payment, according to the CFPB.
This option will also negatively impact your credit score just like debt settlement. In a Debt Management program, you will pay back 100% of your debt obligations.
However, you will pay them back at a lower interest rate. The administrator usually has lower, pre-arranged, interest rates with most creditors. Another difference is you will get a debt counselor to try an educate you on the root of the problem.
It works the same way as debt settlement whereby you make one regularly scheduled payment for all of your loans but the funds are handled by the debt management company.