What a credit counselor does
To take help of a credit counselor, you have to enroll yourself in a credit counseling service. The company representative will render you free credit counseling and will analyze your current financial situation. He will also guide you to prepare a budget and give you knowledge on how to handle debts properly in the future. He will then select a debt repayment plan on the basis of your affordability.
The credit counselor will contact your creditors and negotiate with them, on your behalf. They will mutually agree upon a repayment plan for you, with lower monthly payments. He will also negotiate to waive off penalties for late payments and over limit charges.
Debts covered by a counseling service
Generally, credit counselors will render their help for the following types of unsecured debts:
- Personal loan
- Attorney bills
- Unpaid rent
- IRS tax debt
- Unpaid credit card bills
- Unpaid medical bills
- Unpaid dental bills
- Student loan
- Unpaid utility bills
When to go to a credit counselor
You can take help of a credit counselor, if you face the following situations:
- You cannot make further payments to pay off your debts
- You have already been defaulter for more than 3 installments
- You are on the verge of declaring bankruptcy
- You are apprehending credit crunch in the near future
Factors considered by a credit counselor
The credit counselors, while rendering their service, consider the following factors:
- Your monthly income and expenditure
- Other expenses like, insurance, tax, medical bills, etc.
- The total amount of outstanding debt balance
- Account having the minimum debt balance
- The current number of debt accounts
- Interest rates for the different debt accounts
Advantages of going to a credit counselor
The benefits you are likely to get if you take help of a credit counselor are:
- Guidance in preparing a budget: On the basis of your monthly income and expenses, the credit counselor will help you to prepare a financial budget, so that you can save more and pay off your debts faster.
- End of harassing calls: The moment you seek help from a professional credit counselor, all the harassing calls from your creditors will come to an end. Even if any creditor continues to do so, you can take legal action against him.
- Affordable single monthly payments: The credit counselor will negotiate with your creditors to replace your unpaid bills with a single consolidated loan, at lower interest rate. Thus, your monthly payment amount will get lowered and you can pay off debt without having any stress.
- Re-rating of delinquent accounts: If you were already delinquent, before enrolling yourself with a credit counseling service, then, after making several payments with the new repayment plan, you will be able to re-apply to re-rate your delinquent accounts.
- Debts paid off in shorter time: With the new repayment plan, your monthly payments will become less. So, you will be able to save more and in addition to the minimum amount, if you can pay a little extra, you will be able to completely get out of debt within 4 to 5 years.
However, you should keep in mind that, when you will take help of credit counselors to resolve your debt problems, it will have an adverse effect in your credit report. You should select a reliable and authentic credit counseling company that will see to your best interest and help you to become debt free in a short time.