Credit counselling is a process that helps debtors with debt settlements. The tools usually employed for effective credit counselling involve financial education, budgeting, and the basics of certain software. The ultimate goal of credit counselling is to reduce and eradicate debt.
It sounds pretty neat on paper, doesn’t it? But there’s more to credit counselling than meets the eye. For example:
- It’s no magic trick. Your debt won’t disappear. More than likely, you will need to make choices that aren’t the most convenient or comfortable for you.
- You will need to strictly adhere to the counselling for it to work.
- If you choose a credit counsellor who fixates too much on the technicalities and theories but little application then it would all be in vain.
Long story short – you need some experienced, a mentality to make foundational changes in your lifestyle, and follow any plans or strategies with religious zeal.
Think of credit counselling as a type of workout regime. A workout regime only works when you stick to it from the beginning to the end. You don’t pause. You don’t give up. You stick to the prescribed diet.
Similarly, you can also get rid of your debt through a slow but steady process. Let’s look at credit counselling in general and what it entails.
What is credit counselling?
First things first. What is credit counselling precisely?
It’s key to understand what credit counselling is, at its most rudimentary level, and even more importantly, what it is not.
- Credit counselling will allow you to get out of debt usually within 35-60 months.
- A credit counsellor will be able to find out opportunities to ease your debt situation by means of certain fee waivers or lower interest rates. There are several techniques that a credit counsellor might employ.
- Credit counselling will not reduce your debt or the principal amount that you owe.
- Credit counselling comes with its own costs – there are starting fees as well as regular fees for managing your account.
It’s often the case that you don’t actually know the amount of debt that you are in.
That’s why a credit counsellor will first determine how much in debt you are in before formulating any plans for reducing that debt. The credit counsellor will also liaison and negotiate with the lenders (your creditors) to get you lower interest rates and waivers on certain fees.
Getting in touch with a credit counsellor, therefore, also helps you in determining where you stand, financially speaking. Charting a debt management plan comes right after figuring this out.
Credit counselling might sometimes be called debt counselling – especially when done specifically to reduce or get rid of debt and not to manage personal finances or to set up better budgets.
It should also be noted that in many cases, your agreement with a credit counsellor can fall apart if you miss a payment that was prescribed by them. A credit counsellor cannot vouch for people who would still miss repayments because they have tie-ins with banks and other creditors.
Their trustworthiness can suffer a lot if they represent defaulters. That’s why you have to be extremely careful and fully accountable when managing your finances while working with a credit counsellor who is communicating on your behalf.
Credit counselling is a two-way street. Do your bit and see your debt decrease.
Should you go for credit counselling?
If you are unable to find a way out of debt and it is showing no signs of falling then yes – it’s time to seek the help of a professional.
A professional and experienced credit counsellor will most likely improve your debt situation. The process takes time and it requires you to do your due diligence as well. Nevertheless, it’s surely an efficient method of reducing your debt.
Chances are that if you think you can manage your debt on your own then you wouldn’t be searching for credit counselling in the first place.
The first sign that credit counselling might be appropriate for you is exactly that.
It might also be the only option you have in certain cases.
There’s no doubt that good credit counselling will always help you out of a bad financial situation. By when and by how much depends completely on said debt and your conviction to the plan or strategies put forth by the counsellor.
What to consider when choosing the right brand of credit counselling?
Don’t just go for any credit counsellor. Do your research first. There are different types of credit counsellors specializing in different types of debts. The amount also matters. You don’t want to rush a decision especially if you’re under remarkably crushing debt.
Always take your time and discuss plenty before making a decision.
We are assuming that you are only going to choose among licensed and certified credit counsellors. The key factors to consider before settling on a credit counsellor include:
- Experience
- Are of expertise (such as debt management, debt reduction, personal finance, budgeting, and so on)
- Core competencies
- Past work
- Fee
There are various services that you can go for. Credit counselling is not just limited to debt management. You can opt for individual financial counselling, money management planning, future planning, current year’s financial budgeting, and so on.
You can also take the help of a credit counsellor to plan for the long term, up until your retirement.
Indeed, one of the things that make credit counselling so effective is its flexibility.
Note down your priorities and expectations out of a credit counselling plan. Make sure you inform the counselor what you expect to get with the counselling sessions. And once you’ve begun, remember that your financial history, track record, and current financial data should be provided completely to the counsellor.
What happens when I get a credit counsellor?
Good question. We’re glad you asked. Here are a few things you can expect, although note that not all credit counsellors are the same, neither are all debt situations the same.
- A credit counsellor will help you obtain copies of credit scores and various reports. These will help you evaluate where you stand.
- You will be able to quickly find any red flags in your lifestyle or spending nature. Take heed and get working on improving any financially dangerous habits or expenses.
- Financial course correction is sort of at the heart of credit counselling. A very bad course can only be corrected when certain strong measures are taken. Be prepared.
- The help in budget planning is one of the most lucrative features of credit counselling. Your budgeting will improve a lot. Not everyone is good at planning a budget that, quite literally, fits the bill. And hey, we don’t judge. A credit counsellor will help you improve your budgeting skills and derive a few insights while at it.
- Expect to have a debt management plan. It can potentially include expense cuts or dire lifestyle changes. Ultimately, such a plan will help you pay your debt more efficiently down the line.
- Do not expect fast results. Debt takes time to go away. Adhere to the plan well and you shall be seeing results within a year or two.
- Sometimes you can also expect educational materials, workshops, or other resources that will help you improve your situation.
How much will I save up with credit counselling?
As outlined throughout the piece, there’s no exact figure of savings. You can measure the impact of credit counselling as you go.
Nevertheless, you can approximate savings well within the range of 1 to 15%.
The idea behind credit counselling is that out of the payments you make and the money you spend, a larger portion than before should go to repaying your debts.