Life can bring up unexpected events that put us in hard financial situations. Whether you have debt or have trouble paying your bills, there are services such as non-profit credit counseling and debt consolidation that might be able to help you get back on track.
One important thing to note is that the impact of credit counseling and debt consolidation depends on the level of your financial health. Consider your individual financial circumstances as you read our guide on credit and debt counseling to determine the proper next steps for your journey.
What Is Credit Counseling?
Credit counseling offers educational materials and workshops to help you manage your money and debt. There are two types of credit counseling:
- For-profit: These organizations earn money through fees. This usually means that they offer plans that are more expensive than non-profit agencies.
- Non-profit: These organizations are supported through grant money provided by credit card companies. Their services are usually free.
With their focus on helping you get back on track with your finances, credit counseling agencies offer services ranging from housing and mortgage counseling to credit and debt counseling.
How Credit Counseling Works
So how does credit counseling work? Before selecting a credit counseling agency, it’s important to do your research by looking into their services and reputation. Since there are many unreliable services out there, you want to make sure you find a trustworthy one.
When you select a credit counseling organization, you will be paired with a counselor who will look over your money situation with you. These sessions typically last up to one hour. Depending on the type of financial situation you are in, you may receive information like:
- A review of your credit report.
- Budgeting tips to help you save more and pay off your bills/debt on time.
- How to consolidate your credit cards to simplify and lower your monthly payments.
- Other outside references and tools to consider for specific issues or circumstances.
Seeking non-profit credit counseling may not be the right option if you are not making a substantial income. Being able to set aside the money to make extra payments on your debt is usually central to the entire concept. So be sure to properly plan and think about other possible routes such as job training organizations that can provide you with the right resources to get back on track.
What Is Debt Consolidation?
Debt consolidation is a form of debt refinancing. It involves taking out one loan to pay off other loans. If you’re deep into student loan debt, a hefty credit card balances, or car payments, debt consolidation may be a solution. Think of it as a combination of these debts—you receive one monthly bill instead of juggling multiple ones.
How Debt Consolidation Works
There are non-profit debt consolidation organizations that can help you find debt relief. The good thing about this loan process is that it simplifies paying your bills—you make one monthly payment that has one interest rate to one lender.
Though this does not decrease the total amount you owe, it may save you money on interest. If you qualify, you can obtain lower interest rates, which can decrease your total monthly payments and help you pay off your debt faster.
Aside from debt consolidation loans, there are other loans you can use to combine your debt, such as:
- Personal loans: These are unsecured loans, which you pay back through installments.
- Home equity loans: These involve providing the equity of your home to the lender as security or collateral.
- Credit card balance transfers: You can transfer the balance of several credit cards onto one card.
If all goes well, you can end up with a manageable, low-interest debt repayment plan. Be sure to understand all the components involved in debt consolidation before making a final decision.
Credit Counseling vs. Debt Consolidation
While credit counseling can help you come up with solutions for a wide variety of money situations, debt consolidation simply focuses on debt relief. So if you’re having trouble figuring out which one is right for you, think about what your specific needs are.
If you need advice on a variety of financial situations and want to learn how to alleviate such issues in the future, credit counseling may be the right path for you. If you have a good understanding on how to organize and manage your money and need help in streamlining your bills and lowering your monthly payments, then consider debt consolidation.
Aside from these scenarios, you should also consider your personal circumstances to see if these services will be the right fit, since they may require factors such as good credit and/or steady income.
CreditAnswers understands that unexpected events arise in our lives that put us in challenging financial circumstances. If you need help getting back on track, reach out to us to receive a free debt assessment today.