There are a lot of things that you can do to help your quest of becoming debt free. All of them will require you to change your ways as your debts evidently show that you are doing something wrong in your finances. It is important for you to determine the best debt solution that will get you out of debt because there is no one formula to debt freedom. You have to make sure that your financial situation is appropriate for that specific debt relief program. Some people have gotten deeper into debt because they chose the wrong solution for their credit problems. Try not to make the same mistake so you can reach your dream of becoming free from debt.
When it comes to credit counseling, it is an effective way for you to get out of that debt pit that you are in. But you have to make sure that your debt and finances have the right qualifications to help you solve your credit troubles. According to USA.gov a credit counseling agency will help you negotiate with your creditors so you will be allowed to make lower payments. Then, they will help you send those payments over to the creditors based on the money that you will send them.
But beyond that definition, you need to ask yourself a couple of questions to determine if this is the right debt relief path that you should follow. There are two sets of questions that needs to be asked. One is to yourself while the other set of queries should be answered by the credit counselor.
3 questions to ask yourself before finding a credit counseling agency
Let us begin with the questions that you need to be asking yourself. There are many credit counseling benefits – that is true. But only if you have the right debt types or financial capabilities to complete your payment program.
Given that, what questions should you be asking yourself before you finally opt for credit counseling?
Is it possible for you to do this on your own?
In all honesty, this debt solution is something that the average consumer can do. It is still a difficult task to accomplish, but it is not rocket science. The trick is to have the negotiation skills that will make the creditor agree to change your payment terms. You are not negotiating for a debt reduction – which in essence is actually harder. You are only asking for your payment terms to be revised so you can afford your monthly payments. In most cases, what happens is you propose a longer payment period so you can stretch your contributions thin. That should make the monthly debt payment burden more bearable.
For some people, they may have the negotiation skills but if they do not have the time or the discipline to accomplish this, then hiring a credit counselor is usually the best option for them. Ask yourself if you can negotiate and commit to the payment program that you and the creditor will agree with. That is how you can decide if you can do this on your own.
Is this your best option?
The next question to ask is if this is your best option. Remember that you have other options before you like debt consolidation loan, balance transfer, debt settlement and bankruptcy. You need to determine if this is the best option by looking at your capabilities to pay off your debt. Unlike debt relief options like debt settlement or bankruptcy, there is no debt reduction in this debt solution. You will end up paying for everything that you owe. It is possible for the credit counselor to help you negotiate a lower interest rate – but that is never a guarantee. So make sure that you are capable of paying off your whole debt – even if it is for a longer payment term.
How will your credit score be affected?
You need to ask yourself – how will this debt solution affect my credit score. The good news is, credit counseling hardly has any effect on your score. That is because you will still pay your debts in full in the long run. And since you will be negotiating the payment terms, the creditor will not report you for late payments or default even if you pay lower than what you used to. At least, as long as the amount you are paying is according to what you agreed on in the debt management plan. Some creditors will report that you are currently going through a credit counseling program. That could affect any new credit that you are applying for. But if you finish the program without any problems, then it might not affect your score at all.
5 questions to ask the credit counselor
If the answers to the questions above are in favor of you using credit counseling, then you can go ahead and look for the credit counseling agency that you will use. These questions will help you stay away from debt relief scams, that unfortunately, are still out there waiting for desperate consumers who are burdened with debt.
Here are the 5 questions you need to ask the credit counseling agency that you will get in touch with.
Can you get the information for free?
If it is your best debt solution, then you need to ask if you can get the information for free from the credit counseling agency. According to the Federal Trade Commission website, FTC.gov, a reputable and legitimate credit counseling agency should have no problems sending you information about the company and their services for free. You do not have to provide any information before this is given. If they insist, then you may want to reconsider if this agency is sincerely after your debt freedom or are they only concerned about profiting from your credit problems.
Can you afford to pay according to the debt management plan?
The debt management plan contains your proposed payment terms – usually a lower monthly contribution that is distributed over a longer period. While you will be involved in creating this, it is still bound for the approval of the creditor. But even if that is true, make sure that you do not agree on a plan that you cannot afford. If you end up being unable to pay your debts, you might have the whole agreement terminated, and you do not want that to happen.
What is their procedure in paying off creditors?
In this debt relief program, the credit counselor will be responsible for sending your payments to your creditors. Make sure that their payment methods will not jeopardize the billing cycle of your credit accounts. The debt management plan that you will create should consider the actual schedules of your debts – unless this is part of what the credit counselor will negotiate with the creditors. It is possible to move your payment date after all – you just have to ask the creditor. Just like with the payments, if you miss the schedule that you agreed with the creditor, it will affect the debt management plan.
What fees do you have to pay?
In most cases, you should only pay a maximum of $50 a month for the service that you will get from the credit counselor. Some charge a certain percentage – just make sure that it is no more than 20% of the monthly payment that you are making. Otherwise, you should go and look for another agency to work with.
Who maintain full control over the account?
Even if the credit counselor is the one sending your money towards the creditors, you need to clarify that you will maintain full control of your account. After all, it is still your money. You should be free to get money from it if you want to. Of course, you have to consider the effects that it will have on your debt management plan.
In case you want a list of trusted credit counseling agencies, you may want to look at the accredited list in Justice.gov. This can be a great way to start your search for a legitimate company to work with.