Can credit counseling services be considered another form of debt consolidation? In essence, it can. This type of debt solution intends to make your life easier as you try to pay off your multiple debts. It involves a credit counselor who will assist you as you try to get out of debt.
Credit counselors are trained and licensed professionals who are specifically there to help consumers with their credit issues. What is great about these individuals is that they will not propose a plan that will bring you more harm than good. They are bound by law to ensure that they only provide what is helpful and financially beneficial for you.
According to a survey, one out of four American consumers will get help from a debt expert employed by a non-profit credit counseling agency. At least, they would if they are having troubles with their debts. Credit card debt is quite challenging since it can turn bad really fast if you do not manage it well. It can help you budget your finances if used well but it can put you in serious debt if left unchecked.
When you are in over your head in debt, the feeling can get quite overwhelming. When that happens to you, it can be difficult to make the right choices. This is why having a professional work with you can be a good thing. They can guide you as you try to solve your mounting debt problems.
Using credit counseling to consolidate debt
But how can credit counseling be considered a debt consolidation strategy?
The truth is, your debts will not be combined – at least, in the same way, that it is done with a debt consolidation loan. But it will feel like it is combined because you will only be sending one payment to the credit counselor. They will be the ones to distribute the funds to your creditors and lenders.
But how does it all work? There are two things that a credit counselor can do for you.
Negotiate and communicate with creditors
Credit counseling is great at managing your debt payments. Your counselor can help you communicate with your lenders whenever you have some concerns. Imagine if you have five different credit card lenders and you need to ask each of them if it is possible to lower down your interest rate because you have been making on-time payments.
It would take you quite a long time to call each of your lenders and an even longer time making a case for your request. This can eat up precious time and more often than not, you simply do not have the time to call them one at a time. Your credit counselor can help you make those calls and simply get back to you letting you know if your lenders agreed or not.
Assist in creating and implementing a Debt Management Plan
A credit counselor can also assist you in creating your repayment plan. In credit counseling, this is called a Debt Management Plan. It has all the debts that you owe and the amount that you can afford to pay for each. You need to make sure that the amount that you will agree to pay in this plan is something that you can commit to. Whatever you come up with will be presented to all your creditors and lenders. This is where the negotiating skills of the credit counselor will come into play. Because of the nature of their work, you can benefit from their existing working relationship with creditors and lenders in the industry. This can really work in your favor.
Once the plan is approved, the credit counselor will help you implement this plan. This is when credit counseling will feel like debt consolidation. You will be sending the total debt payment fund based on your debt management plan. The credit counselor will be in charge of distributing this amount – making sure that all your creditors and lenders are paid in time.
Benefits of using credit counseling
Based on the two roles of credit counselors, it is easier to identify the benefits of credit counseling. Here are some of them.
You can focus on building your debt payment fund
According to reports, paying off debt is the number 1 cause of financial stress. But since you are only worrying about one payment every month, your financial stress goes down significantly. When this happens you get to have a clearer mind – one that is able to make smarter decisions that will increase your debt payment fund. You need this focus so you can exhaust all possibilities to improve your financial situation.
You will be forced not to use your credit cards
While you are in the midst of a debt management program, you will be forced to stop using your credit cards. At least, this is true for the credit accounts that you enrolled in the credit counseling service. This will make it easier for you to refrain from adding to your current debt balance.
You are given basic financial education
Finally, the credit counselor will also help you stay away from debt by educating you of basic financial habits. They will not just help you get out of the financial mess you are in. They will also make sure you do not get yourself into another in the future.