What is Credit Counselor And How They Work?

Repairing your credit is the first step to financial stability. And fixing your credit takes work. You will only get an overnight result if you work hard for a day. It’s not working like that. Credit report repair companies might also help you, but they are costly. Consulting a credit counselor is cheaper if you need help with what to do with your credit.

What is a credit counselor?

When you consult a credit counselor, they will review your financial situation and discuss your options. They will try to avoid bankruptcy whenever possible. They will help you choose the best option for repairing your credit. A credit counselor will provide detailed information about budgeting, planning, making payments, and everything that helps you financially. It’s called a debt management plan.

Debt Management Plan (DMP)

DMP is usually offered through a credit counseling agency. It is an arrangement that allows you to gather all your credit card balances into one single payment. The main objective is to ultimately pay off your outstanding credit card debt. It usually takes up to 3-5 years to pay off the debt.

Your credit counselor will contact your creditors and negotiate a payment amount you can afford each month. Your monthly payment will then be distributed to your creditors by your credit counselor.

If you are still in doubt, here are a couple of lists of Debt Management Plan benefits:

1. Lower interest rates and monthly payment

Your credit counselor can reduce the interest rates, which can help you pay your debts faster. And as mentioned earlier, your credit counselor will negotiate your monthly payment to an amount your can afford. It means you get to pay lower monthly dues.

2. No harassing collection calls

Getting a repeated calls from numerous collectors can be stressful. If you apply for DMP, calls like this will lessen and eventually stop. If you ever receive a call from a creditor while applying for this program, you can direct them to your credit counselor.

3. One monthly payment

As mentioned, multiple balances will be combined as one monthly payment. It will lessen your burden of paying multiple debts each month. It is beneficial, especially for individuals who need help keeping track of multiple debts.

After learning about the benefits DMP provides, let’s talk through its downside.

1. Accounts are frozen

While enrolled in the plan, you will not be able to use your enrolled accounts. DMP requires you to close your credit accounts, and you will not be able to use your credit card or open a new line of credit.

2. DMP is for unsecured debts only

DMP is designed for unsecured loans like credit cards or personal loans.

3. Creditors may not be on board

Not all creditors are willing to cooperate. DMP depends on how the creditors are willing to comply with the terms. If they do, it will be easier for you to meet your debt obligations.

How does Debt Management Plan or DMP affect your credit score?

Your credit score may drop at the beginning of your plan because all your credit accounts are frozen. However, if you comply with your plan and successfully shrink your balances, it may recover somehow. That’s how your credit repair using your credit card.

How do you qualify for Debt Management Plan?

Not all individuals will qualify for DMP. But if you struggle to pay your balances and need to progress on your unsecured loans like a credit card because of the high interest, you might qualify for DMP.

With all that being said, you should still be responsible for your payments. Make sure that your creditor is receiving your payments from your credit counselor. Because if not, and a problem occurs, it will worsen the status of your credit.

Keep in touch with your creditor. Did they receive the plan? Did they accept it? You have to have an answer to these questions before you make payments with your credit counselor to avoid worries on your end.

In conclusion:

Repairing using your credit card is possible. Do your research and analyze your situation well. Credit helpers near me can help you, and so is a credit counselor.

Analyzing your financial situation and drafting a plan is the first step to rebuilding your credit. It may take time, but it is better to take things slow than get stuck with bad credit.

Remember, bad credit can be a hindrance to financial stability. It will block the opportunities you can get when you want to apply for financial assistance.

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