Debt counseling provides options for financial problems
Consumers have a variety of options for getting out of debt, and debt counseling is an effective approach for many. Debt counseling, when provided by a reputable organization, gives debtors a big picture view of their finances. In this way, counseling can provide solutions for handling existing debt and ways to avoid additional debt in the future. With credit card and student loan debt overwhelming many, those solutions are needed by many Americans.
How can debt counseling help me?
A lot of people can benefit from debt counseling and not just people who are behind on their accounts. Debt counseling can be used proactively, as a means of avoiding the same mistakes that a lot of people make with their credit cards and budget. If debt has become overwhelming, though, counseling can help people learn how to manage it, or even develop a plan that reduces the total amount owed. In short, there’s a lot that debt counseling can do, including:
- Bankruptcy counseling – Bankruptcy counseling is mandatory for anyone considering going through Chapter 7 or Chapter 13 bankruptcy. Debtors are required to attend counseling twice – once before the case begins and one more time before the case is concluded. The only debt counseling agencies that can offer this service are those that have been approved by the Department of Justice, so it must be done to legal specifications.During the first bankruptcy counseling session, the agency will go over the debtor’s situation and determine if there are any alternatives to bankruptcy. In the vast majority of instances, no alternative is found, but the process still provides helpful information and advice in avoiding further debt. Once a debtor completes bankruptcy counseling, they will receive a certificate of completion that’s good for 180 days. This is what the court will need to see before moving the bankruptcy case forward.The second session takes place just before debts are discharged. The debt counseling agency will instruct the debtor on proper budgeting, finance management and strategies to avoid similar debt-related problems in the future.
- Budgeting – As most debt counseling agencies are nonprofit, their only mission is to provide actionable advice that helps people control their finances. One example of this is showing clients how to set up a proper budget, a service that is often offered during a free initial session.During this free budgeting session, the counseling service will look at the client’s finances, including their income, debts and savings. The counselor will also consult with the client to determine their financial goals, such as getting out of debt or saving for a home. Using this information, the counseling agency will develop a budgeting plan for their client and help them get to the financial finish line.
- Student loan counseling – Americans hold close to $1.5 trillion in student loan debt, surpassing credit card debt in recent years. It’s also one of the more confusing types of debt to manage, as loans frequently change owners and because they are not discharged by bankruptcy.Student loan debt counseling is designed to help people who find their situation overwhelming. Many nonprofit debt counseling agencies offer this service in two levels. The first is a close look at the client’s student loan debt and their finances. During this session, the agency will develop a plan, whether that plan is to consolidate the client’s loans, get them out of default or apply for student loan forgiveness. The idea is to get the debtor back on track and out from under their loans as fast as possible.The second tier of student loan debt counseling is more involved. In this instance, one of the agency’s representatives will do some of the work in getting their client on the repayment plan. This may mean joining the client on a call with the student loan issuer, or helping the debtor fill out any relevant forms.
- Housing counseling – For many people, buying a home will be the most significant purchase they ever make. There’s a lot involved in a home purchase, too, and housing counseling can help sort it out. Further, housing counseling may be mandatory, especially for first-time buyers.There are several forms of housing counseling. The first is pre-purchase counseling, which helps buyers understand the financial habits needed to maintain a mortgage. Also, pre-purchase counseling takes an objective look at the client’s finances and determines how much house the buyer can afford.There are also sessions available for reverse mortgage counseling and delinquent mortgage counseling. During delinquent mortgage debt counseling, the agency will look at the client’s finances and put together a monthly budget that gets the mortgage under control. The counselor will also look at options like refinancing or forbearance to help a homeowner avoid losing their house. Some agencies also provide a deeper level of service, like helping clients during phone calls to a lender.
- Debt management plans – Debt management plans aren’t for everyone, but they can be a powerful tool for people dealing with a lot of credit card debt. Debt counseling agencies offer debt management plans, which are a simple way for people to pay off all of their credit card accounts, without having to go through multiple creditors.Instead, with a debt management plan, the debt counseling agency will combine several accounts so that they can be resolved with a single monthly payment. Many debt management plans also reduce interest rates, so they are ideal for people who believe they could pay off their debts with lower interest rates.
What to target in a debt counseling agency
Effective debt counseling can help people with their troubled finances, but the key word is “effective.” It’s important that debtors find an agency that has the proper accreditations and one that the debtor is comfortable working with.
Almost all reputable debt counseling agencies are nonprofit, so it’s wise to consider organizations that brand themselves as such. The majority of nonprofit debt counseling agencies are either part of the Financial Counseling Association of America, or the National Foundation for Credit Counseling. Both industry organizations enforce strict certification requirements and use third-party accreditation to verify an agency’s processes.
Accreditation is an important point, but debtors should also consider where the agency is located before choosing one. Many people prefer working with the agency in person, and though debt counseling organizations can work with anyone over the phone, they may only have a few physical locations for their clients to access.
Debt counseling can provide a wealth of financial insight to the people who need it the most. It’s an easy process to get started and an easy process for many to navigate. Perhaps most important, though, is that debt counseling can help any household, including those trying to get out of debt, and those that merely want to avoid it.