Have you heard about credit counseling but always wondered what it entails? Credit counseling is a service that helps people who have trouble managing their finances or their debt. A certified credit counselor will discuss your financial situation with you and may help you develop a personalized plan to help you with your money problems.
Authorized credit counselors who conduct credit score counseling typically work for non-profit organizations. They will be certified and trained in the areas of budgeting, consumer credit, and money and debt management.
Sometimes debt can be overwhelming and no matter how many budgets you try or financial mistakes you avoid, you just can't seem to get ahead of your bills. That’s the point where you may possibly consider credit counseling.
If you think credit counseling could be for you, here's what you can expect:
Credit counseling can be done over the phone1 or in person and should only take about 30 to 60 minutes2 for the initial consultation. When you meet with a certified credit counselor, be prepared to discuss your income, your current debts, your monthly expenses, any credit card balances (and details about the APR on each card), and any other debts you may in order to give your counselor the full picture. Also be sure to share with them your financial goals.
You'll most likely need to authorize your credit counselor to run a credit check so that they can have an accurate view of your finances. A credit report will show them not only your credit score but also if you have any collections or other items you may not have known about or even considered.
Once the counselor has all the information he or she needs, they will recommend the best way for you to move forward. They'll work with you to figure out a plan for paying off your debt and in what timeframe. This can include helping you create a budget, an action plan to stick to the budget, and/or refer you to some debt management programs that can help your situation.
Credit counseling has many benefits, such as:
There are several types of credit counseling services that your credit counselor may recommend.
A credit counselor takes a broad look at all your finances and makes recommendations as to how you can get out of debt. Credit counselors work for accredited agencies and can help you come up with a debt management plan for getting control of your finances. They also can recommend strategies such as budgeting, debt management, or even bankruptcy, if necessary.
Does credit counseling hurt your credit? While an initial credit check by a credit counselor should not affect your credit (those are considered "soft" inquiries), other results of credit counseling may hurt your credit score.
Debt management plans may require you to close some accounts, which may affect your credit score and your overall credit history length.
Student loan consolidation may actually can help boost your credit score if you were to use the extra money you have from consolidation to pay off other debt, which in turn reduces your overall debt.
Bankruptcy is very disruptive to your credit. If bankruptcy is your only option, know it stays on your credit report for seven to 10 years, depending on the type of bankruptcy you file.
Credit counselors should be accredited by a national trade organization such as the Financial Counseling Association of America (FCAA) or the National Foundation for Credit Counseling (NFCC).
Legit credit score counseling will require no upfront charges and won't charge for educational materials or workshops. They should not push you into a debt management plan right off the bat or push a one-size-all solution. They should tell you about all solutions available to you and let you choose the one that works best for you. You can check with the Better Business Bureau if you're not sure if a credit counseling agency is accredited or not.
Should you need a credit counseling agency for pre-bankruptcy counseling, you can check the US Department of Justice's list of approved credit counseling agencies.
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