Debt Counseling Programs
- 4 min read
- Debt counseling can help solve debt problems.
- Review the reputation and accreditation for any firm you work with.
- Choose the debt counseling program that fits your situation.
Table of Contents
Understand How Debt Counseling Can Help You
Struggling with the debt? You're not alone. As of May 2017, consumer debt reached an all-time high of $12.73 trillion! That tops the $12.68 trillion level reached in 2008, before the financial bubble burst.
While the delinquency rate is lower now than it was in 2008, many people struggle with increased debt level and rising stress.
Maybe your debt grew out of control due to a financial hardships like a job loss, death of a spouse, or high medical expenses not covered by insurance. In that situation, it is reasonable to take on debt.to pay for basic living expenses.
Maybe you were spending more than you should on things that were not necessities. Whatever the cause of your debt problem, now is the right time to start solving the problem.
Debt counseling is an increasingly popular solution for Americans struggling with debt.
There are a variety of debt counseling programs and services available. It makes sense to look around at the different approaches available. Choose one that matches your goals and priorities and offers a solution that you are confident that you can see through to completion.
Do it Yourself Debt Counseling
Even if you are feeling overwhelmed, it’s worthwhile to take a step back and see if you can make changes in the way you are doing things and solve the problem on your own.
There are plenty of voices out there offering simple advice like, "Stop spending," "Debt is not your problem, your spending is," and "You got yourself into debt, only you can get yourself out of it."
Like most cliches, there is a grain of truth in these statements. If your debt were magically wiped out today and you repeated exactly the same behavior that got you into debt before, you would end up in debt again. What this leaves out is that hard work alone, without a solid realistic plan, won't solve your debt problems.
It is important to know that debt help that exists. A professional debt counseling service may ease your road to getting out of debt while helping you address what got you into debt in the first place. You could become debt free sooner at a lower total cost, while establishing financial habits that will keep you debt free moving forward.
Accredited Debt Counseling Programs
There are two professional debt counseling programs you should examine. They are:
- Credit Counseling: Credit counseling is one type of debt counseling that has helped millions of Americans. Any credible credit counseling service begins helping you by thoroughly reviewing your income, expenses, debts and assets. If you are struggling with high interest credit debts, your debt counseling will like include a recommendation to enter a debt management plan (DMP). A DMP works by getting lower interest rates from your creditors, so you get out debt faster. While in this type of debt counseling program, you start reforming your habits, too, as you are not allowed to open up new lines of credit.
- Debt Settlement: Debt settlement is a more aggressive form of debt counseling. For debt settlement to work, you should have a financial hardship that prevents you from paying all your debts as agreed. A reputable debt settlement firm negotiates reduced balances from your creditors, so you can get out of debt in the shortest time and at the lowest cost while avoiding bankruptcy. Debt settlement harms your credit, because you choose to stop paying your creditors while in the settlement program. However, if getting out debt is more important to you than your credit score, it is one form of debt counseling you should examine.
Both credit counseling and debt settlement agencies charge fees, but both should offer you a no-cost financial review. State laws cap credit counseling fees. Choose only a credit counseling program that has professional accreditation, such as being accredited by the Council on Accreditation or the International Standards Organization. Make sure that the accreditation is up-to-date.
If you choose the right debt settlement firm, you will not pay any fees to settle a single one of your accounts until that account is settled. Only work with a debt settlement firm that is an accredited member of the American Fair Credit Council (AFCC), as AFCC members follow the the FTC’s no-advance fee rule relgiousily.
Pre-bankruptcy Debt Counseling
In severe cases, bankruptcy can be your best debt resolution option. The law now requires that you receive debt counseling from a government-approved debt counselor within 180 days before you can file for bankruptcy.
Free Debt Counseling
Some people are eligible for debt counseling services. Don’t give up, if you can't afford to pay for any professional help. At least take the step of seeing if you can find to find free or low-cost help, especially if you are:
- Retired: Contact AARP if you are retired and struggling with debt should contact. Speak with them about free debt counseling assistance.
- In the military: Active duty military personnel should speak with the JAG office. There are also some private firms that offer free debt counseling to active-duty military.
- Low-income: Low-income households may be eligible for free or reduced-fee services from professional debt counseling agencies or from a free legal-aid organization.
Struggling with debt?
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q2 2022 was $16.15 trillion. Housing debt totaled $11.71 trillion and non-housing debt was $4.45 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Collection and delinquency rates vary by state. For example, in Vermont, 16% have student loan debt. Of those holding student loan debt, 5% are in default. Auto/retail loan delinquency rate is 2%.
To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.