Finding support when you’re stuck in debt can be a tough proposition: Beyond all the D.I.Y approaches, balance transfer cards and cash diets, you may have heard that a credit counselor can help, too.
But what is credit counseling, and could it help you? This guide will go over what a credit counselor does, who they serve best and how their plans compare to other solutions, like debt consolidation.
How a Credit Counselor Helps
Think of a credit counselor as a debt navigator — they can’t fix your problem, but they can show you routes to a solution. A credit counselor can help you understand your situation, build a realistic plan, and take steps to regain control.
Legit credit counseling organizations are non-profits with strong track records of success and service. When meeting with a credit counselor, they’ll typically review the way your debt has impacted your financial health. From there, you’ll work together to build a basic monthly plan for bills, debt payments and living costs.
A credit counselor may also help qualified clients access a debt management plan (DMP), a structured repayment program. In a debt management plan, you’ll make monthly payments to the credit counseling organization, and they’ll send payments to your creditors. The benefit of a DMP is a lower interest rate, but you’re required to stop using your credit cards.
When a DMP Might Make Sense
Debt management plans work best if most of your debt is unsecured, which includes things like credit cards, personal loans and medical debts.
A DMP could be an affordable choice if you have enough income to cover a steady monthly payment, you want to avoid bankruptcy and you don’t qualify for lower payments through other options.
If you decide to follow a DMP, anticipate it to last for 3 to 5 years. During that time, you must commit to the full monthly payment, even if your income or situation changes. If you miss payments, your plan may be canceled. The structure and incentives to follow a DMP can help some people stay on track, so it’s worth investigating — even if you’re not sure.
Impact on Your Credit Score
Credit counseling doesn’t hurt your score, but enrolling in a DMP might impact it temporarily. During the program, some creditors may close your accounts or note that you’re in a DMP. This can cause a short-term drop in your credit score.
But making regular, on-time payments can help rebuild your score. By the time you finish, you may be in better shape than when you started. But remember: While DMPs can be helpful, they don’t erase past late payments or collections. And because they don’t reduce the amount you owe, the path to improvement can be slower than other options.
Credit Counseling vs. Debt Consolidation
Credit counseling or a DMP aren’t right for everyone — and that’s okay! There are other solid options to help ease the burden of debt repayment.
Debt consolidation through Accredited Debt Relief can be an excellent option for providing debt relief. Like a credit counseling program, you’ll get hands-on, non-judgemental support from real people who understand where you are now. Our debt consolidation program is best for people who have over $10,000 in unsecured debt, and can:
- Offer immediate financial relief by saving you 40% or more off your monthly payments
- May reduce the overall interest you pay
- Can get you debt-free in as little as 24-48 months.