Credit counseling is used to help debt settlement through education, budgeting, and other tools to help reduce and ultimately eliminate debt.
How does credit counseling work?
Credit counselors will look at your total financial situation to help you create a plan to pay off your debt, including a money management plan and a debt pay-down plan. They can also provide free resources and workshops related to money management. It is important to be completely upfront about your situation, including what you owe and where you owe it. Be forward about all your current expenses and your income. However, for a credit counselor to really help, you must be completely honest about your situation.
Debt management plans
A credit counselor may recommend a debt management plan. Debt management plans usually involve placing your finances with a company in monthly installments, who in turn, passes those along to your creditors. This means that you will usually stop paying your creditors. Instead, you make one monthly payment to the debt management company and they send your payment to the creditors. A debt management company may also contact your creditors to negotiate lower interest rates.
Debt management plans may also cost you money. It’s possible that you will be charged a monthly fee or an initiation fee to participate in such programs. However, a reputable company will disclose all fees upfront, so you know how much it will cost you before starting a program. If they don’t, be sure to ask about the fees before enrolling in a program.
Does credit counseling affect your credit score?
Credit counseling does not directly affect your credit score. In fact, credit counseling helps you gain control of your credit and keep it under control in the future through budgeting and financial management education. Once the debt is repaid, credit counseling may be shown on your credit report. However, even if it does, there might not be any impact on your score.