Credit Counseling and Debt Management to Learn Important Skills
Credit counseling and debt management are alternatives to bankruptcy and help borrowers to learn important skills such as budgeting and money management. Borrowers are taught practical money skills to avoid excessive debt, delinquencies, and bankruptcies. Counselors teach borrowers how to get rid of debt, factor in their income and liabilities, and manage their debt load. Debt management also helps borrowers to regain control of their finances, set financial goals, and create a realistic budget.
Benefits of Debt Management
Management makes it easier to keep up with your monthly payments and thus improve your credit score. Moreover, collection agencies and banks stop calling. Financial institutions are willing to waive certain charges and fees and reduce the interest rate. This is provided that borrowers make timely payments. Late and missed payments affect their credit score. Financial institutions are less willing to negotiate fees and interest rate reductions.
The main benefits of debt management are a single monthly payment, no penalty fees and interest rates, and affordable monthly payments. Those who choose to enroll in a program repay their debts faster. The reason is that the interest rate is 6 – 10 percent lower.
Credit Counseling
Counseling helps borrowers to develop a debt repayment plan and involves credit education and professional advice. Customers learn how to manage credit and keep their financial freedom. Counselors help borrowers to mend their finances and get rid of debt. There are different ways to do this, including loan consolidation, modification, and elimination of charges and late fees. Borrowers benefit from reduced interest rates and loan amounts. Credit counseling teaches customers how to deal with and avoid high-interest debt. This is a way to rebuild credit and learn how to budget and allocate money. Borrowers benefit from guidance and advice on how to achieve financial stability.
Besides learning important skills, counseling offers additional benefits to debtors. The borrower and counselor go over and discuss money owed such as customer, auto, and student loans, medical bills, mortgages, and credit cards. The counselor looks at the borrower’s income and liabilities and prepares a written summary with advice on how to move forwards. The main goal is to help borrowers to develop a feasible and working plan to clean up your credit history.
Some agencies also offer housing and credit counseling for reverse and delinquent mortgages, advice on foreclosure prevention and bankruptcy pre-filing, and a lot more.
Alternatives to Counseling and Management
Bankruptcy is one alternative to counseling, but it is a last resort. The reason is that bankruptcy remains on the borrower’s record for up to 10 years. What is more, you are considered high risk by financial institutions, which limits your borrowing options. Bankruptcy offers some benefits to debt-ridden borrowers. For example, legal action from financial institutions is stopped. Interest rates on loans and credit cards are frozen. This is also an opportunity to make a fresh start. There are other alternatives to counseling and management, depending on your financial situation. One option is to negotiate with your creditors. It is an effort worth making if you have a sufficient income. Debt restructuring is another alternative. Workouts or out-of-court restructurings have become common among borrowers who face debt and cash flow problems. Individual voluntary arrangements and formal proposals are other options. Under a formal proposal, for example, the borrower makes payments within a certain period. The payments are distributed to financial institutions. This is an option for borrowers who are unable to cope with excessive obligations.
How to Become Debt-Free and Gain Financial Independence
One way to reduce your debt burden is to carry cash with you. In this way, you will avoid interest charges, overdraft fees, and piling credit card debt. It is a good idea to make a list and prioritize your payments. Pay high-interest credit cards and loans first to save on interest charges. Another option is to pay the lowest bill first and then continue with the rest. You may also want to cancel services that you no longer use, whether cell phone plans or gym memberships. Fees and charges quickly add up. Take a closer look at your spending and keep track of payments. Keep all statements and receipts for credit and debit cards and cash purchases and look at your spending patterns on a weekly or monthly basis. Get debt management help as well. There are different programs that will help you to create a working payment schedule, get late fees and charges waived, and negotiate affordable monthly payments.
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