Getting a loan from a bank or financial institution can be easy if you have the right set of documents and meet the eligibility criteria of the lender. But the main challenge is to get out of the debt as per the plan within the tenure of the loan. Getting out of debt requires the right financial plan and discipline to follow. Even one wrong step with regard to your debts can have a negative impact on finances and put the loan holder into a debt trap.
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When managing finances gets hard, debt holders tend to seek help to manage finances. During such critical financial times, a credit counselor can come to the rescue with a mission of retaining your financial stability and giving a plan for debt management. The loan holder needs to get debt management advice from well-experienced professionals and follow their guidelines.
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What is Credit Counseling?
Credit Counseling also known as debt counseling or financial counseling helps the loan holder in managing the debts rightly without making it affect the finances negatively. Certified credit counselors will review the entire incoming and outgoing money flow and suggest a financial management plan. The financial management plan consists of the best and most suitable ideas or steps which would help you in getting rid of the debts.
When credit counselors review your finances, they check if you can repay your debts with any of your balances or if you need a debt management program to clear the loans.
Information for Credit Counseling
The basic information that a credit counseling agency or credit counselor can ask you are,
- Basic Details – Some of the basic details required are Name, Contact Information, and Employment details
- Financial Situation – You must provide all the information related to your monthly or annual income
- Expenses – Be prepared with a list of outgoing expenses like rent, transportation, utilities, etc.
- Debts – Make a clear list of debts you hold including personal loans, mortgage loans, credit cards, etc.
SEE ALSO: Find out if you’re eligible for a home loan in the UAE
What does Credit Counseling provide?
A credit counselor will review all the details and provide you with financial management strategies in order to manage your income and expenses.
- Budgeting – The first step is budgeting. They draw a line for incoming and outgoing finances and list down the necessary expenses and unnecessary expenses that need to be cut down with immediate effect. Budgeting also includes your financial goals and focuses more on that once your income is arranged for your necessities.
- Debt Management Solution – While drawing a budget the counselor will check the debts you hold and make a strategy to clear these debts as well. If your debts are already in good shape with regular payments then they check if you are able to handle the monthly debt payments without any stress. The debt management solution includes debt consolidation, low-interest balance transfer, and even bankruptcy depending upon your situation. The credit counselor might also mediate with your lender for low-interest debts.
- Bankruptcy Counseling – The credit counselor might suggest bankruptcy in extreme cases where you have fewer assets and can’t pay huge loans. Once bankruptcy is declared, all your accounts will be frozen and financial institutions might go for alternatives like using collateral (if any) to clear the loans or auctioning valuable items.
- General Counseling – General counseling is when you are overwhelmed with several debts like a house loan, student loan, credit cards, etc, and not sure how to handle these irrespective of your earnings. The counselor will look into all the income and expenses including debt and gives a plan by focusing on critical debts. They also review your credit report and provide solutions to improve your credit score.
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How to pick a credit counselor?
There are several credit counseling agencies. Before visiting a credit counseling agency you need to check a few things like,
- Accreditation – Ensure the credit counseling agency is accredited and reputed.
- Experience – A well-experienced agency with accreditation and certification can provide you with good and genuine solutions.
- Costs – The charges for the credit counseling services may vary with the agency and your requirement. Some credit agencies offer free budget reviews. But ensure it’s a reputable agency.
Is Credit Counseling and Debt Settlement the same?
Credit Counseling is the review of your budget and expenses where the counselor can provide the right solutions for your debt management. Debt Settlement is part of the credit counseling service. But credit counseling and debt management are not the same.
Will Credit Counseling Affect the Credit Score?
No. Credit Counseling affecting the credit score is a misconception. Credit counseling will only help you in managing your debts in a better way which may lead to improving your credit score after a certain period of time and it won’t be included in your credit report nor affect the credit score.
Though credit counseling agencies or credit counselors promise to solve your financial problems, at the end of the day it’s the debt holder who needs to follow a disciplined financial lifestyle for a secured financial future.