Consumer Credit Counseling or Debt Consolidation

When it comes to financial hardships and dealing with debt, it can be very stressful to plan out a method of managing the situation.  You know that the debt load has to be taken care of but you are caught in the crossroads on how to deal with it.  Continuing to ponder and not take any action will make the outcome worse which ultimately leads you to call for help.  Many individuals are in this position and have that mindset where they do not know where to go and who to go to.

Enter Consumer Credit Counseling and Debt Consolidation.  One has to ask first what are they and their roles when it comes to facing a debt crisis. 

Below is a video from YouTube explaining briefly Credit Counseling and Debt Consolidation:

The question you are probably asking is which one to consider going through.  Should I go with Consumer Credit Counseling or Debt Consolidation?  As mentioned in the video, with credit counseling, you will need to disclose all your sources of debt so that the counselor can then help you set out a budgeting plan.  The role of the counselor would be to contact and pay the creditors on your behalf but at a reduced interest and a monthly amount.  With Debt Consolidation, you can do this on your own by either going to a financial institution and apply for a debt consolidation loan or you can consolidate if you have a credit card or line of credit with the lowest interest rate.  Note that both require application and not all will get you approved.  It will depend on the amount of debt you currently have and your current credit score.

Will they affect my credit score?

The answer to this will be that it will depend on how you go about your decision.  Through credit counselors, they will sit down with you and find the best ways to pay your debts through a Debt Management Plan (DMP) which can affect your credit rating but it will not bring it down significantly.  Through debt consolidation, if you apply for a loan then it will affect your credit score as first the institution will first need to check your credit history and if your credit score is low then it will take another hit.  Chances of not getting approved for the loan will go up.  If you do get approved for a DMP through a credit counselor or a debt consolidation loan, the benefit is that it will help you in your savings and to lead you to pay down your principal.

When going through a credit counselor, seek out those that are non-profit and go through your finances to see if there are ways to manage your debt without applying for a DMP or a loan when consolidating debt as this will avoid having a credit check done.

The other important thing to consider is credit counseling services that are legit as there are many fraudulent activity going around and you certainly do not want to be a victim.  Below I will provide links where you can find reliable credit counseling services and debt consolidation:

How to Find the Best Consumer Credit Counselling Services
Credit Counselling Society
ConsumerCredit.com
Advantage Credit Counseling Services
USA.gov
StepChange Debt Charity
Getting help from a credit counsellor
Help when you’re in debt

Always do your research and read online reviews when looking for credit counseling services or debt consolidation.  Most governments will tell you what to look for to ensure compliance such as certain logos  (i.e. Better Business Bureau). The better the reviews, the chances of receiving honest and reliable assistance.  Write down questions to ask for the credit counselor that you may be concerned of or things to avoid.  Any tips that the credit counselor provides you, take advantage of them to create your own financial plan and budgeting goals.  Always look at what fees the credit counseling agency is asking if they do ask.  If they do not mention fees then ask.  If there are any contracts to sign, be sure to read it thoroughly and make sure to ask if this will affect your credit rating.  If you have the ability to consolidate your debt through existing credit sources, check if there are low interest promotions that you can take advantage of.

 

Feel free to share your thoughts if you have approached credit counselor agencies and if you would recommend them to others that are looking. 

 

 

 

 

 

4 thoughts on “Consumer Credit Counseling or Debt Consolidation”

  1. There is a lot of good information in this post. Dealing with finances is stressful when you forego managing it and keeping on top of it. In learning the differences between debt consolidation and credit counseling I would probably steer more people toward credit counseling. I think having an advisor, teacher, and accountability partner is exactly what most people need when they fall in this boat. The credit consolidation seems like you have to be very disciplined to make payments. The counseling sounds like someone is there to walk you through it step by step. However, knowing that both options are available is very important. Thanks for sharing.

    1. Hi Claudette,

      Thank you for your comment.

      I agree that seeking credit counseling is the best route as the counsellors have already dealt with other individuals, couples, and families in dealing with their financial debt issues. It is different for each case but the value that you get out of the counseling is the key objective. As mentioned in the article, one still has to do their research when seeking credit counseling advice as not all are legitimate. With the credit crisis happening and individuals taking on more debt, there are scammers that are trying to take advantage of that. One has to be very wary if they approach a credit counselor where they want fees up-front; take it as a red flag. Other considerations with credit counseling is seek out friends or family that do have the experience in budgeting, who have paid off their debts and who consistently keep to living within their means.

      Sam

  2. Luckily, the article contents are something I need not worry about. After taking a solid look at my finances, and looking at the scattering of accounts I had, and the interest applied to those accounts, I made a concerted effort to eliminate my debt and live interest free. So I paid off all my accounts, and now make sure that every month the balance if paid in full, and no interest in accrued. The interest part is what gets people into trouble, and all it takes is one missed payment to start the spiral of money troubles.
    Good information to know!!

    1. Point well taken. I personally do not like any amount showing on credit cards or any loans as it makes me uneasy and restless. I am sure I am not the only one and who would want to live paying off debt. As long as the amount in the loan or credit card is small enough to pay in full then you are right in paying it off right away without accruing interest. Loans and credit card companies love it when one has a balance so that they can then profit on the interest; especially if it is a high interest. With regards to trouble, not only will one missed payment compound the interest but the person will also face a credit hit; therefore, one must try to avoid getting into that situation. Thank you for your comment Brad.

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