Credit counseling is the process through which consumers are educated on ways to avoid taking on debts that cannot be paid. This is done through the establishment of a detailed plan to remain financially solvent. This process usually involves negotiations with creditors to establish a specific plan for the consumer. Most counseling services are individualized and tailored to meet the needs of individual customers.
For prudent financial management, the services of a credit counselor are important. This is because a person’s credit says a lot about them to the business world and can affect many aspects of their life. Most people tend to assume that it is only credit card companies that can access this data and that find it important. In reality, landlords, insurance companies, businesses and even employers can also access this data. Most of them are interested to know a person’s past payment history and spending habits to determine whether that person is a responsible financial consumer.
Credit Counseling Procedure
The process of credit counseling starts with a detailed analysis of a person’s resources and the creation of a budget. In creating this budget, the customer has to make choices, determine available funds and establish realistic long term and short term financial goals. Credit counselors can request a credit report which can help the consumer see where they’ve had issues in the past and how to avoid them in the future.
Benefits of a Credit Counselor
A credit counselor can help you with the following services when managing your debt:
- Debt consolidation
- Debt refinancing
- Reduction of interest rates
The importance of a credit counselor can be seen from the fact that they can help a person to consolidate multiple monthly payments into one monthly payment. This single payment is usually less than the sum of the individual payments which were previously paid by the customer. The other benefit is the reduction in the interest rate paid by the customer. With a debt management plan from a debt counselor, one can have his or her creditors reduce the interests charged, and some can actually eliminate interests altogether.
Many credit counselors can help their customers bring delinquent accounts current. This is usually done through making a series of timely payments to show good faith and commitment to the completion of the program. However, it is important to note that this does not in any way eliminate the prior delinquencies from credit bureau reports.
When looking for a credit counselor, it is advisable to check the services offered, find out the fees charged, determine whether the credit counselor is licensed in your province, ensure that all information is strictly private and confidential, and that apart from helping with the immediate problem, the counselor can help you come up with a long term plan to avoid financial problems in the future.
When filing for bankruptcy, some people are required to attend credit counseling, but people should try to get these services before it reaches this stage. It is advisable to get credit counseling services so that you can avoid having to file for bankruptcy. It is also not easy to repair one’s credit score following a bankruptcy, and preventing a bad credit score is better than trying to repair it.