A non-profit debt counseling session is provided to clients completely free of charge. Whilst settling credit card debt, medical bills and other unsecured debt is the over-riding objective, protecting a debtor's credit score is an equally high priority for many clients. FICO scores need not be affected, provided that an individual struggling with financial difficulties does not delay indefinitely before seeking assistance.
Selecting a Non-Profit Debt Counseling Service
It is imperative that some homework is done prior to selecting a credit counseling service. Whilst the majority of providers work tirelessly to improve a client's financial position, others are only interested in selling debt relief programs. This is the case with any industry or business.
The priority of a non-profit debt counseling services should be trying to balance income and expenditure through improved budgeting. If this is hardly discussed during a session, it should be seen as a genuine warning sign. Counseling is free and there is nothing to stop a debtor seeking help elsewhere.
Choosing the right service will help to protect a debtor's credit score as commencing a debt settlement program or Debt Management Plan will not be viewed positively when applying for credit in the future. It may be the right choice, but make sure that this is the case at an early stage.
Budgetary Analysis
Each non-profit debt counseling session involves a comprehensive budgetary breakdown, including an analysis of income/expenditure and assets/liabilities. It is necessary to take as much relevant paperwork along as possible, including the most recent statements from creditors.
The objective is to pinpoint areas where savings can be realised in order to restore parity to family finances. It may involve a few simple lifestyle changes in order to reduce outgoings. This element of the debt counseling process will not have negative repercussions for the debtor's credit score.
Debt Relief Programs
A budgetary analysis is not always sufficient to reduce someone's income-to-debt ratio. If repayments on unsecured debt remain too high, a debt settlement program or Debt Management Plan can be used to address this issue. Their purpose is to write-off some of the principal (reduce the amount owed) and/or make monthly repayments more affordable.
Signing-up to a debt settlement program or Debt Management Plan will have negative repercussions for the debtor's credit score. Unlike a simple budgetary analysis, a debt relief program involves defaulting on the terms of the credit agreement. This will be registered with all the major credit reference agencies.
It is important to remember that those who have already missed or made late payments on credit cards, loans and medical bills will already have an adverse credit history. A non-profit credit counseling session can help a debtor to get their finances back in order. It is just important to determine from an early stage how this should happen.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional before proceeding.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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