If you are in debt, you are not alone. In addition to all of the resources available to help you develop your own plan to get out of debt, there are public agencies that can offer assistance, too. If you’ve never heard of this option, you may be wondering, “how does consumer credit counseling work?” Well, let’s get into it!

What is consumer credit counseling and who might need it?

Consumer credit counseling services offer financial education and assistance with debt management as it relates to using credit. Trained and certified coaches meet with anyone who wants help to develop a financial plan to pay off debt.

These people understand all of the available options and can recommend the best one for your unique situation. The best part? These services are usually free.

For-profit and non-profit counseling services

When it comes to actual services, there are both for-profit and non-profit counseling services.

For-profit credit counseling agencies charge fees for their counseling services, which means their plans are generally more expensive.

Non-profit credit counseling agencies, on the other hand, are supported mostly by grant money from government agencies, credit card companies and financial institutions that help to provide financial education. They may also be funded by some consumer fees credit card companies collect.

These companies provide non-profit agencies with funds to help their individuals get out of debt. Because they are funded through grants and not fees alone, non-profit agencies are usually free. However, sometimes they charge fees for certain services.

How do you know if you are a good candidate for credit counseling?

Anyone who is in debt, in particular credit card debt, can consider credit counseling. If you have recently lost your job, are experiencing a reduced income, or are living paycheck-to-paycheck, it might be for you.

Anyone who uses credit cards for all of their expenses but cannot pay off their balances in full every month is also a good candidate for counseling.

While focused on debt-relief solutions, these services aren’t just for those in debt. You can work with a credit advisor to develop long-term financial goals, such as saving for a house down payment, planning for a large purchase, or building up your emergency fund.

These are all goals that I personally have and a good credit coach can help you come up with a plan to achieve these goals, too!

No matter your financial situation, consider meeting with a certified credit counselor to determine if you are a good candidate for their services. The great thing is that a meeting with this trained representative is free, so you have nothing to lose by giving it a shot.

A step-by-step guide on how to use consumer credit counseling

Most people have no idea that there free services out there that can help them get out of debt. And so to explain, here’s a step-by-step guide on how you can leverage consumer counseling services.

1. Select an agency and schedule a free counseling session

First, you’ll need to select a credit counseling service. (We have some tips below on how to find them and decide which service is right for you.) Once you have selected one, you will make an appointment to meet with a certified counselor, either by phone or in person.

Non-profit counselors receive extensive training and are certified to counsel on many aspects of debt management.

2. Prepare for your meeting

If you prepare for your initial counseling session, you’ll get the most out of it. The goal of this meeting is to give the advisor your entire financial picture so that they can help you, so it’s best to be honest and forthcoming about everything.

Before your meeting, you’ll want to gather together the following:

• Income: Your paycheck or other proof of income, including withholding amounts and take-home pay.
• Expenses: An estimate of your monthly expenses.
• Debts: A list of your monthly payments, interest rates, and other loan terms for all car loans, student loans, mortgages, personal loans, and any other loans.
• Credit cards: A list of your credit cards, including information on your balances, interest rates, and monthly payment dates for each.

The preparation alone is beneficial since knowing what you’re spending and earning is essential to managing your finances well.  

3. Review your finances

During your credit counseling session, you will go over your finances in detail with your advisor. Together, you’ll review your income, expenses, debt, and any other payment obligations. During this time, you will also authorize the counselor to run a credit check on you.

This soft inquiry will not impact your credit score but will allow your coach to see if there is anything on your report, such as debt in collections, that they need to know to understand the full picture of your finances.

4. Review your options for relief

Based on your session, your credit consultant will discuss your options. Your counselor might suggest how you can budget or reduce your expenses (maybe with a low-buy year) to pay off your debt as quickly as possible.

If your current income is not enough to pay off your debt, a counselor might recommend another type of counseling, such as a Debt Management Plan (DMP).

When a DMP is put in place, your credit card companies agree to reduce the interest rates on your credit cards, which means you end up paying less money over time.

Non-profit credit counseling can negotiate credit card debt with your credit card companies on your behalf to reduce your interest rates.

In return, they will likely ask you to close certain cards and continue to make your monthly payments. It usually costs about $75 to set up a DMP, along with a monthly service fee of about $25 to $55, according to Debt.org.

Another option is bankruptcy counseling. Many services offer credit counseling for anyone going through bankruptcy.

If you plan on filing for bankruptcy, getting credit counseling is mandatory, according to the U.S. Department of Justice.

If applicable, your counselor might suggest that you enroll in housing counseling or foreclosure prevention counseling. There, you can learn about better budgeting, mortgages, taxes, and more related to homeownership.

Lastly, if student loans are a factor, look into student loan counseling. A certified counselor can analyze your finances and provide you with information on student loan repayment plans or options.

5. Decide on a plan

Non-profit credit counselors are required to review all of your options with you. After doing so, they’ll make a suggestion as to which one is the best for you.

However, it’s always up to you to decide which course of action to take.

A good counseling service will offer an unbiased opinion so you can be confident you are not being led astray.

Don’t forget to ask questions about all the solutions offered and choose a financial plan that makes sense for you. While they are the experts, this is still your debt and your life, so the decision is ultimately yours.

6. Educate yourself

What is credit counseling? It’s a way to learn your options for debt relief. Now you know what to expect before meeting with a credit coach.

Ideally, at the end of the meeting, you will have a concrete plan to tackle your debt and you will be on the road toward living debt-free. But that might take some time, and your counselor is only there for guidance—not to force you into a decision. 

In the meantime, take advantage of the free resources the counseling agency offers so you can continue to educate yourself and build good money habits. You can also check out the public library, financial websites, and other free resources to help you find strength to work through financial challenges.

Expert tip: A credit counselor can help with more than debt management

For anyone struggling with debt and unsure how to move forward, seeing a certified nonprofit credit counselor is a great place to begin. 

These often-free services can help you get a clear picture of your finances, including debt. Then these trained representatives can explain the pros and cons of the various options for dealing with your debts. 

Creating a budget, analyzing your credit report, learning how to pay off debt, and learning how to manage your money effectively are some ways the counselor can help. 

Where to find a reputable credit service

Fortunately, there are several avenues you can follow to locate a trustworthy credit counselor and avoid falling victim to scams. 

National Foundation for Credit Counseling

The National Foundation for Credit Counseling, or the NFCC, offers one-on-one assistance with getting your finances back on track. NFCC representatives recognize that debt can affect anyone and will help you develop your personal plan of action for getting out of debt. 

A nonprofit organization, the NFCC has 250 agency locations and over 1,200 certified credit counselors to assist you. They can help you with managing your debt, organizing your budget, following the steps to prepare for a mortgage, and avoiding a foreclosure. 

Although the NFCC isn’t accredited by the Better Business Bureau, it does have a rating of A+ on the website. 

Financial Counseling Association of America

Another reputable credit counseling service with available certified credit counselors is the Financial Counseling Association of America (FCAA). Member agencies offer assistance like other credit counseling organizations; they can assist with debt management, budgeting, and other financial needs. 

How does consumer credit counseling work with the FCAA? A session with one of the nonprofit-trained representatives through the FCAA is free, and you aren’t obligated to enter into a debt management plan (DMP). If you’re having trouble deciding which of your bills you can pay this month, credit counseling can help guide you to a solution. 

Credit.org

Here’s an organization that will offer services like budget counseling, student loan counseling, debt relief, and housing assistance. Credit.org is accredited and carries an A+ rating with the Better Business Bureau. 

As one of the NFCC-affiliated agencies, Credit.org is a nonprofit credit counseling service. They even offer housing guidance through HUD Certified Counselors, along with assistance in budgeting and debt relief. 

American Consumer Credit Counseling

You might also check with the non-profit American Consumer Credit Counseling (ACCC) for help in getting out of debt and getting payments under control. 

One downside of the ACCC is that it’s not a free service. According to their website, you’ll be charged $39 once to enroll, plus a $7 maintenance fee. You may be eligible for a fee waiver if you’re in the U.S. military, in financial hardship, or live in a state that covers these types of fees. 

The ACCC does offer services and some of its financial education materials at no charge. It’s also notable that it offers bilingual services for Spanish speakers. 

You may want to check the Better Business Bureau rating of any specific ACCC agency before working with them, but the ACCC itself is accredited and has an A+ rating.

Credit Counselors Approved by the U.S. Department of Justice

You can also use the U.S. Department of Justice to help you locate a reputable counselor. Check out their extensive list of approved credit services to find exactly the assistance you need. 

Simply search by your state of residence to locate agencies that are approved to provide certified credit counseling to you (their address may be in a different state, FYI). Many of the approved agencies offer both English and Spanish-speaking services, and you can even search to learn if any agencies provide service in other languages. 

How credit counseling can help you

Are you still asking yourself, how does consumer credit counseling work? Then, let’s talk about the primary ways a counselor may be able to serve you. 

Budgeting

Even people who don’t have a large amount of debt may benefit from working with a credit counselor. Budgeting is one of the potential services a credit counseling service can offer. 

Your budget is your plan for how you’ll spend the money you bring in every month. So, if you need a better budget (or you’ve never strictly followed one), working with a budget counselor can help you take action. 

You might need help figuring out how to prioritize payments, ensure you’re not missing any bills, or cut unnecessary spending. Your credit counselor can help you see where you need to make changes and what you’re doing well. 

Money management

A credit counselor can be beneficial in advising you on money management. It might go beyond basic budgeting, as you may have more complex needs than how to allocate your funds. 

Financial management can be tricky, especially if you’re dealing with debts as well as cash flow issues. You can get guidance from your credit counselor about how to work with your creditors to pay off debt efficiently, save an emergency fund, and more. 

Examining your credit report

One thing many people aren’t aware of is how to obtain a copy of their credit report. When asking, “What is consumer credit counseling?” you’ll learn that this is one facet of their services. 

A counselor can show you how to get access to your credit report and your current credit scores. Plus, they can teach you important information about what those scores mean. 

Learning what lenders and others see when they check on your credit is key to getting your finances on the right track. Your credit counselor will be able to look at your credit report and draw your attention to anything like a neglected loan payment. 

Finding out your credit score is essential if you need to get a loan for a small business, a car loan, a mortgage, or other type of loan. If your credit score has dropped, you can talk to your counselor about ways to raise it. 

Managing your debt

One of the primary reasons people seek out counseling is unmanageable debt. If your debt has gotten away from you, whether due to uncontrolled spending, having to negotiate unforeseen medical bills, job loss, or any other reason, credit counseling can help. 

Certified credit consultants may discuss a variety of strategies for handling debt. They should not shame you for being in debt but help you examine your situation and choose the best course of action. 

You might find that starting a side hustle, weekend side job, or tightening your budget could be enough to help you start reducing your debt. Another option may be to even sell off some assets, if you have any that you can do without.

However, some people may choose to enroll in a debt management plan, or DMP. 

Debt management plan (DMP)

A debt management plan is a stricter option that you may find helpful.

However, make sure that this is the right option for you, as there are other ways to pay off debt.

How DMPs work

Your counselor communicates with your creditors to arrange a new payment plan. The plan may include a single monthly payment to the organization rather than to multiple creditors. 

A good debt management plan should have lower monthly payments and lower interest and fees.

However, beware of fraud when looking into DMPs. You don’t want to send payment to the agency only to find that they never approved the DMP with your creditors. 

Find out how a debt management plan may affect your credit as well.

Although you’ll pay off the debt eventually, these are primarily for unsecured credit, such as credit cards, and you’ll typically close any accounts under the DMP. It can affect your credit by decreasing your credit history. 

How do you select a credit counseling service?

Aside from choosing between for-profit and non-profit services, there are other things you should consider when selecting a counseling service. These are the key things to look out for when making your choice:

Check their certification

First, make sure whatever service you are considering is certified. Any reputable agency will be certified by either the National Foundation for Credit Counseling or the Financial Counseling Association of America.

Learn about what services they offer

Research exactly what services the agency offers. Beyond the free counseling service, what else is available? Most agencies have an abundance of free resources that can prove invaluable on your journey to getting rid of your debt.

Check, too, what paid services they offer. It’s better to go into your meeting knowing what your options might cost than to be surprised by how much your solution ends up costing you. 

Your credit counseling agency may offer student loan counseling, financial skills workshops, budget counseling, and a variety of other services. They can analyze your current assets, income, and goals to provide helpful guidance. 

Ask about fees

Counseling should always be free, but even non-profits may charge for additional services. There are, however, organizations that never charge for their services. If you don’t have the assets or want to pay, you can certainly find free counseling services. 

For example, Operation Hope is a non-profit organization that partners with financial institutions to provide free financial programs to help individuals take control of their money.

Avoid shady offerings

If a credit counseling service is offering something that seems too good to be true, it might be. Run from any that makes false promises, such as guaranteeing something like a change in your credit score (nobody can guarantee that). 

Credit counselors can’t promise to erase all of your debt. They also don’t typically lower the total you owe; instead, they help to lower your payments. 

You should also confirm ahead of time that the agency will provide you with all of the debt relief options available (non-profits are required to do this, while for-profits are not). You don’t want to choose an agency that will only suggest solutions for which they charge a fee.

What makes a credit counselor credible?

A credible credit counselor or organization will usually:

• Offer free educational materials. 
• Be accredited with the National Foundation for Credit Counseling or the Financial Counseling Association of America
• Be in good standing with the Better Business Bureau

They should also not urge you to go into a debt management plan without ensuring it’s the best option for your situation. 

What is a risk when using a counseling service?

Some services have been flagged by the FTC for defrauding people, so you need to carefully vet the agency before working with them. Be careful that you’re using credit counseling, not a debt settlement company. 

In addition, entering into a debt management plan can be risky if you don’t work with a legitimate agency to do so. Be sure to confirm with all creditors before sending payment under a DMP so you don’t miss payments with them. 

What is the success rate of credit counseling?

The rate of success depends on what your goal outcome is, but according to Nerd Wallet, only around 55% to 65% of those who enroll in a debt management program successfully complete the program.

However, there are many other successful outcomes to aim for. Decide beforehand: What is consumer credit counseling to you? 

You may use student loan counseling to choose the best repayment strategy, for one. Or you may find yourself sticking to a budget for the first time, improving your credit score, or receiving lower interest rates on debt. And attending money management workshops can set you up with the knowledge you need to succeed in life. 

Articles related to credit and counseling

If you found out more about credit counseling from this article, read these other posts next for more information!

• What To Know About How Financial Counseling Works
• What Is Budget Counseling And How Does It Work?
• 7 Tips For How To Negotiate Credit Card Debt
• How Does Credit Work? Here’s What You Need To Know

Getting out of debt can be easier when you have help!

Dealing with debt can feel embarrassing, but it shouldn’t be this way. Tackling your debt doesn’t have to be a solitary experience. And what’s more surprising, you don’t have to spend money to get the help you need. 

With the right credit counseling service on your side, you’ll be able to develop a free or inexpensive plan to get yourself out of debt once and for all. Finally, be sure to check out our completely free courses as you work on improving your finances!

The post How Consumer Credit Counseling Works appeared first on Clever Girl Finance.

Even when you’ve got a lot of things right, you might reach a point when getting your financial situation under control seems impossible. If you’re really struggling financially and aren’t sure which problem to tackle or how, budget counseling can help.

Budget counseling can teach you how to budget and budgeting methods. Plus how to protect your credit scores and other key financial strategies. But you may be curious if it is right for you, and if it is, you may wonder, “Where can I find budget counseling near me?”

So, let’s dive in and see exactly what budget counseling is. Plus how it works and how to get the help you need.

What is budget counseling?

Budget counseling is when you meet with someone who can help you improve your finances. Many budget counselors work for nonprofit organizations, so you may be able to get assistance at no cost.

Even if there’s a cost involved in working with a budget counselor or consumer credit counseling, that doesn’t mean you should rule it out. When you’re drowning in large amounts of debt or chronic struggles with money management, working with a trained counselor is likely worth a small investment.

Types of guidance you can get from budget counseling

Let’s talk about some of the types of help a budget counselor might be able to offer you. That way, you can decide if it’s the right choice for you.

Help with managing your money

Money management is one of the key ways you could benefit from budget counseling. A trained counselor can guide you through steps to help you manage your money, such as evaluating what you need to improve.

Money management includes things like setting up a budget or a better budget, monitoring your credit, and planning ahead with sinking funds for big expenses.

As an example of large expenses, you may need to save and get a loan from a mortgage lender for home ownership, or you may want to purchase a car. These goals are easier to achieve with good money management.

Help with creating a budget

Money management is a rather broad goal. One key skill your counseling sessions can help you develop is budgeting! You could learn about different budgeting methods, like the 30-30-30-10 budget or the cash envelope system. 

Budgeting is just knowing how much you have coming in and how you’ll spend or save it. You might do best with a strict plan for how every cent is used, as with the zero based budget. Or you may need a looser strategy that gives you just a few categories, like the 70-20-10 budget.

Either way, budgeting can help you manage all of your expense categories. Things like utilities, groceries, and medical bills, as well as saving for the future.

Working closely with a budget counselor could help open your eyes to your money story and the way you relate to money. They can also guide you through budget challenges, such as the process of creating and sticking to a budget.

Credit score monitoring

Unfortunately, keeping tabs on your credit score and credit report is something too many of us neglect in our money journeys. We think that everything will be fine as long as we pay our bills.

However, you need to monitor your credit score because it is so key in determining whether you can get financing from creditors. You could be unable to rent an apartment or buy a car at a decent interest rate if your credit score has dropped significantly.

Consider talking to a counselor if you’re unsure of how to keep track of your credit scores. It’s actually pretty simple to check your credit score regularly through a free credit report. A budget counseling expert can help you take steps to raise your score if it’s down.

Guidance in paying down debt

Another important aspect of budget counseling is often learning how to attack your debt and reduce it. A credit counseling organization and a certified credit counselor are usually well-trained in how to help people out of debt.

Often, unsecured debts and high interest rates can be one of the most painful parts of your money story. The idea of lots of debt can weigh you down, bring you feelings of shame, and make you feel hopeless.

Talking to a budget counselor can help you deal with debt stress. In addition you can figure out a game plan for dealing with credit card debt or loans.

According to Bankrate, more than half of adults in the U.S. find money stressful. Talking to a budget or debt counselor can help you find your way beyond debt and help you get rid of that extra monthly payment.

Identity theft protection

Although identity theft is one of those things you probably don’t expect will happen to you, it’s a real risk. Budget counseling could provide assistance if your identity has been stolen, which is a horrible situation to have to sort out.

With cyberattacks and fraudulent activity on the rise, we’ve all got to be vigilant.

In fact, according to Experian, about 1 in 20 (5%) of Americans are affected by identity theft each year.

Budget counselors can help you figure out the best way to prevent identity theft and fraud, as well as help you if you’ve already been a victim. They can talk with you about whether you should freeze your credit and other preventive steps.

Dealing with predatory lenders

We’re all aware there are some shady players out there, and the world of finance and lending is no exception. Sadly, many lenders have predatory practices—they may be deceptive or coercive and convince borrowers to take on loans that could ruin them.

When going through budget counseling, your counselor can help you learn to spot red flags of predatory lenders. (Watch out for payday loan traps, for example!) You can find out ways to deal with or report a lender that’s breaking the law.

Expert tip: Leverage budgeting tips from counseling to improve your finances

In addition to seeking out professional help with your finances, it’s a good ideas to take extra steps on your own to learn more about your money.

Read books, listen to podcasts or YouTube, go to finance workshops, and learn more about any financial topics you might be struggling with.

Having more information about budgeting, interest rates, investing, and credit cards is a great way to get your money back under control. So even if it takes some time, learn as much as you can.

How much budget counseling costs

As you’ve read about the benefits of budget counseling, you’re likely wondering one key question: how much will it cost? The good news is that you can find places that offer free counseling and information.

For instance, you can try our completely free financial courses right here at Clever Girl Finance to gather more financial knowledge.

In addition to our courses, here are some other options to check out as well:

For-profit counseling

In spite of the fact that budget counseling or debt counseling may imply you don’t have any savings or a lot of excess cash, some organizations do charge for their services. These are for-profit counseling agencies.

Even if an agency is for-profit, its fees may be quite reasonable. Ask upfront before selecting a budget counselor if they charge and how much. And you’ll want to look for free options first in order to focus on getting your financial house in order.

Fortunately, the Federal Trade Commission reports that credit counseling agencies should, at a minimum, give free information about their services. (If they charge even for basic information, run the other direction!)

Non-profit counseling

Plenty of non-profit budget counseling agencies exist, so you’ll want to examine your options in that arena first. Of course, your first step is simply gathering information. If you find there are several organizations in your area, read over their websites or call to request info.

Some places that may offer free counseling include your local consumer protection agency, credit unions or banks, universities, housing authorities, and military bases.

One warning: the term non-profit may not mean the agency’s services are totally free. So even if an agency is labeled as a non-profit, you still have to do a little more homework to find out if they charge for debt or budget counseling sessions.

Where to find a budget counseling service

You may be wondering, “Where do I find budget counseling near me?”

First off, you’ll want to try locating a counseling service that is free of charge. However, in some cases, you may need to sign up for a Debt Management Program (DMP), which will usually have a cost.

The good news is there are several reputable sites where you can find a budget counseling service that can help you get back on track with your finances! 

If you know anyone who has gone through this process, you might also ask them for referrals and recommendations.

Financial Counseling Association of America

The Financial Counseling Association of America (FCAA) is an organization with financial counselors available to help you. You can get basic budget counseling at their various agencies as well as debt management plans.

The FCAA is a non-profit organization. You can find resources like articles on specific types of financial assistance, housing assistance, where to find bankruptcy counseling information, and more on their website, fcaa.org.

National Foundation for Credit Counseling

Another reputable nonprofit option is the National Foundation for Credit Counseling. They can help connect you to a member agency that will offer debt relief solutions.

The NFCC does charge a monthly fee for services related to the debt management program, which helps you pay your debts.

However, even a one-time counseling session of 30-60 minutes can help you come up with action steps to improve your financial health.

Questions to ask to help you choose the right counseling service

When you’re wondering, “Where is budget counseling near me?”, it’s a good idea to look into several different agencies or types of counseling. What you choose will depend on how severe your needs are, along with other factors.

Any decision about going through budget counseling requires you to ask a few key questions. You can look online for these answers, of course, or try calling or emailing a representative at a few agencies.

Here are some questions to get you started.

What services are available?

Naturally, you’ll want to find out what types of services an agency offers. If they specialize only in debt management and you’re looking for more basic budgeting guidance, you can look elsewhere.

How can I access budget counseling (online, by phone, or in person)?

You’ll likely figure out the answer to this question with your initial investigation. Try your preferred method of contact first, and then you can ask what types of counseling they provide.

What free information is available?

Whenever you’re talking to a representative or reading online resources, you can find out about free resources. Most reputable counseling organizations will provide information at no charge. If they charge you even to give out information on their services, that’s a bad sign.

Is there a formal contract to sign?

Ask any budget counseling agency you’re considering about contracts. What level of counseling is offered, how many sessions are there, and are you obligated to sign any recurring contract with fees?

How are your budget counselors trained or certified?

Knowing what kind of training the counselors at agencies go through, or if they are accredited or not, will help you make an informed decision. Plus, it will give you peace of mind knowing you have a financial expert who is able to help you make the right financial moves.

What makes a financial counselor and a financial advisor different?

The basic difference between a financial advisor and a financial counselor is what they focus on teaching you and helping you with. A financial counselor will focus on helping you build great money habits through budgeting, debt repayment, etc.

On the other hand, a financial advisor tends to focus more long-term on investing and retirement planning. They run scenarios that show you how much you need to invest and provide guidance based on your long term goals.

In a nutshell, a financial counselor can teach you the basics about money, and a financial advisor can help you plan far into the future.

Does budget counseling affect your credit score?

Your credit score is not directly affected by budget counseling. However, when you choose to take action with any debt you have because of the counseling, you may see a change in your credit score.

For example, closing credit card accounts may negatively impact your credit score temporarily. But this can all be worth it in the long run if you are trying to clear up any debts you have and become financially free.

And remember that the opposite is also true, by creating a plan with your counselor to repay debts, you can positively impact your credit score, as well.

Articles related to counseling and budgeting

If you liked learning more about where to get help with your finances, check out these articles next!

• What To Know About How Financial Counseling Works
• How Consumer Credit Counseling Works
• Are Credit Repair Companies Legit?
• How To Budget: The 4 Best Budgeting Methods To Try

Consider budget counseling to get your finances in order!

You may think you’re a lost cause when it comes to finances. Please, don’t believe that for a moment.

You can take control of your money by starting a new life for your finances, and budget counseling just might be the tool you need to make that happen. Leverage the tips in this article to create a plan and seek out the support you need.

The post What Is Budget Counseling And How Does It Work? appeared first on Clever Girl Finance.

The post What To Know About How Financial Counseling Works appeared first on Clever Girl Finance.