Credit counseling educates consumers about how to repay their debts and better manage their personal finances. This one-on-one counseling is customized to the client’s unique situation. An NFCC-certified consumer credit counselor can help consumers by crafting a new budget and debt repayment plan, all of which is informed by the client’s own financial information. Some clients need the additional help of a formal Debt Management Plan, though the majority benefit from credit counseling alone.
What happens in credit counseling?
Gathering Your Information
- You supply information about your personal finances.
- We recommend gathering your most recent paystubs, credit card bills, household bills including utilities, and an estimate of how much you spend on food and transportation per month.
- The more complete and up-to-date your information, the better our advice will be.
Begin Credit Counseling
- Discuss your debt and personal finance situation with your counselor.
- Your counselor reviews your budget with you and offers targeted advice to help you control your spending.
- Your counselor analyzes your debts and educates you about effective repayment strategies.
Create a Plan
- Your counselor will prepare a new budget for you based on your unique circumstances.
- Your plan will guide you toward repaying your debts.
- If your circumstances warrant it, your counselor may propose a Debt Management Plan (DMP).
What does a credit counselor do?
A counselor will work with you to provide the best possible options based on your individual financial situation. They can provide assistance with all your financial obligations, not just the relationship you have with us here at Bank of America. One of these options may be a Debt Management Plan (DMP). A DMP is designed to work with all your creditors providing a multitude of benefits such as reduced payments and interest rates and the elimination of late fees (if applicable). As part of the DMP, you will then pay one monthly payment to your counseling agency who, in turn, will disburse your payment among your creditors.
How do I know if I need credit counseling?
Credit counseling is not for everyone. It primarily benefits people who (1) can’t afford to make more than minimum payments each month, (2) are near or over their credit limit or (3) constantly receiving collection calls. The bottom line—if your debts just don’t seem to be decreasing on a month to month basis, you may want to call a counseling agency.
How do I choose a credit counseling agency?
Be careful when choosing a credit counseling agency. There are a lot of agencies that may be more interested in selling you their services, rather than helping you trim down your debt. Consider the following tips:
- Be sure to select a non-profit agency under section 501c(3) of the Internal Revenue Code.
- Be careful what you buy. Some agencies are only interested in selling a DMP—even if you don’t need one. Counseling should always be objective, include a credit report review and budget analysis and offer assistance to get you back on track.
- Be sure that the right questions are being asked. A counselor should be seeking in-depth information about your finances. If not, they will be in no position to select the best option for your particular financial situation.
- Beware of “debt settlement” agencies. They often masquerade as credit counseling agencies to gain legitimacy with the public. These agencies often (1) offer little or no financial education, (2) charge excessive fees and (3) allow their client’s debt to become delinquent or charged off before a settlement is reached.
What can I expect from a credit counseling agency?
Be prepared to answer some very tough and personal financial questions. You will need to discuss your monthly income and expenses, so it would be helpful to have any statements and bills available. You should also be prepared to estimate your discretionary spending throughout the year—like for meals, clothing, donations, gifts, etc.—as these will need to be considered in your budgeting efforts.
Be open and honest about your financial situation. Remember, your counselor will require a complete understanding of your finances to help you establish an effective budget.