Getting out of debt is normally not an easy task and sometimes it requires effective debt management credit counseling. Just the fact that you are having problems paying your debt implies that your financial management skills and techniques just didn’t work out well, and you need to have it polished and modified through proper counseling and guidance from experts in this field.
The main goal of debt management credit counseling is to get you out of debt. This will definitely not happen overnight; it may take several months or even years before you can finally enjoy a debt-free life. To achieve the objectives, you need to change your lifestyle and spending habits, including your financial priorities in order to effectively trim down your expenses to gain more paying power.
How Does Debt Management Credit Counseling Work
Debt management credit counseling is a relatively complex process that involves several aspects that include creation of a debt management plan, financial management education, counseling on bankruptcy and foreclosure, and spending habit and behavior modification program, to name a few.
The basic methodology of debt management credit counseling starts by visiting a reliable and affiliated credit counselor. The first thing to do is to lay down your cards by telling the expert all your debts to several institutions like credit card companies, banks, and lending firms. You must also show the expert all your assets, and be transparent on all sources of income.
Once the counselor has an overall idea on all your assets and liabilities, both you and the counselor will work together in formulating a repayment plan based on your total net income. This also includes proper budgeting on all aspects of your finances to avoid overspending.
The debt management plan is a comprehensive plan that may also include setting the budget on all basic expenses such as expenditures on food and drinks, clothing, energy, rest and recreation, phone bills, and the like. This may normally entail lifestyle change in order to stay within the budget. The plan will, in the end, set the amount of money allocated for the payment of loans, while still allocating some amount for the basic household expenses.
The next phase is the loan consolidation. The credit counselor may recommend that you consolidate all loans into one loan with a lower interest rate. This involves getting a loan from another lender, and paying off all loans that charge higher interest rates than the newly-secured loan.
Now the tricky part is the payment of loans. Some debt management credit counseling services may require you to course through all payments to the counselor who shall, in turn, pay your loans on your behalf. This may sound good since this ensures that the money allocated for the payment will not be used for other things.
However, some complaints were lodged by several individuals against certain credit counseling services that allegedly failed to pay the remitted money to the necessary channels, resulting to loan defaults that only aggravate the problem. To avoid such issue, it is best to stay clear of such companies.
Debt Management Credit Counseling Before Bankruptcy and Foreclosure
It is important to note that debt management credit counseling is mandatory in some cases. Individuals planning to file bankruptcy and foreclosure are required to undertake debt management credit counseling.
There are instances where individuals were successful in averting looming bankruptcy due to effective debt management gained from the credit counseling. In other cases, home owners were able to keep their homes and avert foreclosure from banks as a result of the credit counseling.