Getting a loan from a bank or financial institution can be easy if you have the right set of documents and meet the eligibility criteria of the lender. But the main challenge is to get out of the debt as per the plan within the tenure of the loan. Getting out of debt requires the right financial plan and discipline to follow that. Even one wrong step with regards to your debts can have a negative impact on finances and put the loan holder into the debt trap.
When managing finances gets hard, the debt holders tend to seek help to manage finances. During such critical financial times, a credit counsellor can come to the rescue with a mission of retaining your financial stability and giving a plan for debt management. The loan holder needs to get debt management advice from well-experienced professionals and follow their guidelines.
What is Credit Counselling?
Credit Counselling is also known as debt counselling or financial counselling helps the loan holder in managing the debts rightly without making it affect the finances negatively. Certified credit counsellors will review the entire incoming and outgoing money flow and suggest a financial management plan. The financial management plan consists of the best and suitable ideas or steps which would help you in getting rid of the debts.
When the credit counsellors review your finances, they check if you can repay your debts with any of your balances or if you need a debt management program to clear the loans.
Information for Credit Counselling
The basic information that a credit counselling agency or credit counsellor can ask you are,
- Basic Details – Some of the basic details required are Name, Contact Information and Employment details
- Financial Situation – You must provide all the information related to your monthly or annual income
- Expenses – Be prepared with a list of outgoing expenses like rent, transportation, utilities, etc.
- Debts – Make a clear list of debts you hold including personal loans, mortgage loans, credit cards, etc.
What does Credit Counseling provide?
A credit counsellor will review all the details and provide you with financial management strategies in order to manage your income and expenses.
- Budgeting – The first step is budgeting. They draw a line for incoming and outgoing finances and list down the necessary expenses and unnecessary expenses that need to be cut down with immediate effect. The budgeting also includes your financial goals and focuses more on that once your income is arranged for your necessities.
- Debt Management Solution – While drawing a budget the counsellor will check the debts you hold and make a strategy to clear these debts as well. If your debts are already in good shape with regular payments then they check if you are able to handle the monthly debt payments without any stress. The debt management solution includes debt consolidation, low-interest balance transfer, even bankruptcy depending upon your situation. The credit counsellor might also mediate with your lender for low-interest debts.
- Bankruptcy Counselling – The credit counsellor might suggest bankruptcy in extreme cases where you have fewer assets and can’t pay huge loans. Once bankruptcy is declared, all your accounts will be frozen and financial institutions might go for alternatives like using collateral (if any) to clear the loans or auctioning valuable items.
- General Counselling – General counselling is when you are overwhelmed with several debts like a house loan, student loan, credit cards, etc and not sure how to handle these irrespective of your earnings. The counsellor will look into all the income and expenses including debt and gives a plan by focusing on critical debts. They also review your credit report and provide solutions to improve your credit score.
How to pick a credit counsellor?
There are several credit counselling agencies. Before visiting a credit counselling agency you need to check a few things like,
- Accreditation – Ensure the credit counselling agency is accredited and reputed.
- Experience – A well-experienced agency with accreditation and certification can provide you with good and genuine solutions.
- Costs – The charges for the credit counselling services may vary with the agency and your requirement. Some credit agencies offer free budget reviews. But ensure it’s a reputable agency.
Is Credit Counselling and Debt Settlement the same?
Credit Counselling is the review of your budget and expenses where the counsellor can provide the right solutions for your debt management. Debt Settlement is part of the credit counselling service. But credit counselling and debt management are not the same.
Will Credit Counselling affect the Credit Score?
No. Credit Counselling affecting the credit score is a misconception. Credit counselling will only help you in managing your debts in a better way which may lead to improve your credit score after a certain period of time and it won’t be included in your credit report nor affect the credit score.
Though credit counselling agencies or the credit counsellor promise to solve your financial problems, at the end of the day it’s the debt holder who needs to follow a disciplined financial lifestyle for a secured financial future.
About the author
Nikitha is a Senior Analyst at MyMoneySouq.com. She has been writing about personal finance, credit cards, mortgage, and other personal finance products in the UAE. Her work on Mortgage loans has been featured by the GulfNews and other popular Financial Blogs in the UAE.
