Debt Counselling: Does it Really Help?
With economic instability, more and more people are having difficulty paying their bills and making ends meet. Without enough savings in the bank, you can experience financial turmoil, making you feel vulnerable especially during emergency situations. To somehow relieve their financial difficulty, some people apply for loan in the bank or other financial institutions. Although loans are beneficial, failure to manage your debt can lead to more serious problems.
Debt counselling, which is also being referred as credit counselling, is a process that helps borrowers become aware of the things that they need to do in order to prevent having high unpaid debts. It also helps create a debt management plan (DMP) that assists the borrower to repay their loan by negotiating with the creditor or the lender using a repayment plan that would make it easier for the debtor to pay back. Depending on the agreed terms, you can make only 1 consolidated payment each month. This monthly payment can even be reduced from 30%-60%.
To make the most of the benefits that this counselling provides, it would be better if you know when to seek help. You should seek the help of a reputable debt counsellor if you are already seeing signs of debt troubles such as:
- Not having enough cash on hand to repay the loaned money and using credit card to make minimum monthly payment.
- Applying for cash advance loan from one creditor just to pay your debt from another creditor.
- Borrowing money from your family or friends just to pay the bills.
- Requesting to increase your credit limit on credit cards.
- Applying for consolidated loans while still using your credit cards.
Aside from these, you may also seek for debt relief if you cannot recover financially from emergency situation, not saving money for your retirement, and using credit cards for the things that you usually pay with cash.
Drawbacks of Debt Counselling
Like other debt management efforts, debt counselling has also some drawbacks. For one, since this involves decreasing your monthly payment, it will take more time for you to fully pay your debt. Not to mention that you will pay more interests. Another drawback is that you will incur additional cost. This is because credit counselling is not free. Depending on your chose credit counsellor, they may ask for 5% aftercare fee every month. You may also incur a rejection fee if your chosen counsellor found out that you not eligible for counselling since you are not over-indebted.
The process can also become complicated. You have to make some sacrifices in order to prove to the court that you are serious in paying off your debt even if it means you have to minimize your shopping spree and make certain changes in your lifestyle. Moreover, you cannot also get more credit and use your credit facilities.
To reduce the risks involved in debt counselling, it is vital that you found a reputable debt counsellor. With the thousands of companies that are offering this counselling service, careful research is needed. Most agencies are dedicated to helping you resolve your financial woes. However, not all of them fulfil the kind of service that they promise, charge the most reasonable rates, and provide excellent pieces of financial advice.
Factors to Consider When Choosing a Debt Counselling Agency
Getting the highest quality service from a debt counselling agency involves choosing the right one. But with all the agencies out there, how can you be sure that you will choose the one that can meet your needs best?
1. Make Sure That Your Chosen Agency Is Accredited
In the United States, an agency that is a member of the Association of Independent Consumer Credit Counselling Agencies and the National Foundation for Credit Counselling is your best choice. Hiring the service of an agency that has been accredited by the International Organization for Standardization can help you ensure that it has meet the standards set by the organization.
2. Determine the Kind of Services Offered
As much as possible, you have to choose an agency that offers a broad range of quality services. This is to make sure that they have everything that can help you deal with your debt problems. Refrain from hiring those that are claiming that your only option is through DMP. Good debt relief agencies present several options that can reduce your credit problems. They may also offer debt management classes and budget counselling.
3. Ensure That They Employ Experienced, Highly Skilled, and Certified Credit Counsellors
Being a certified credit counsellor requires expertise and knowledge in the field. They need to undergo training and take and pass a certification exam to ensure that they are competent in dealing with various aspects of debt relief such as bankruptcy, budgeting, debt management, and credit and consumer law.
4. Ensure That No Serious Complaints Are Filed Against the Agency
Make a research online to know if there are complaints filed against your chosen agency. Refrain from hiring the service of the agency that has long list of complaints. You can check the website of the Better Business Bureau to identify that list of unresolved complaints filed against the debt counselling agency. You also have to determine what the complaint is all about.
5. Know the Rates Being Charged
It would be best if you choose the debt counselling agency that provides nominal fee and more than one debt management option. Take note that establishing a DMP should not exceed $50. The agency should also be willing to waive your fees if you do not have the capacity to pay for them. Be careful on the debt counselling agencies that force you to make “voluntary contributions.”
Debt counselling has its own perks and perils. What’s important is you carefully determine if this debt management option is really the right one for you. If not, do not be afraid to seek other options that will help you better management your debts. If you believe that it is the solution to your problem, then the best thing that you can do is to hire the service of a reliable debt counselling agency.