What To Know About How Financial Counseling Works

Financial Counseling

If you feel like you're drowning in debt, then you may want to seek help with financial counseling. It's normal to have some consumer debt, but high-interest debt can wreak havoc on your finances. According to Experian Credit Bureau, the average American has four credit cards, and the average balance is around $6,270!

It can be a struggle to keep on track financially for many reasons.  If you’re laid off or can’t work due to illness, you can easily fall behind on monthly obligations. And once you're off track, things can quickly go downhill.

When this happens, it’s important to take action and not let things go from bad to worse. One of the best things you can do to get back on track financially is to seek out financial counseling.

What is financial counseling?

Financial counseling is a strategy consumers use to improve their financial skills, set financial goals, and get rid of debt. If you’re struggling with finances, financial counseling may be just what you need. It can help you develop a solid financial blueprint and create a strategy to pay off bills.

By participating in financial counseling, you’ll be able to sit with a professional financial expert and develop a personal plan. This plan will include paying off creditors, stop living paycheck to paycheck, and working towards all your financial goals.

Who uses financial counseling?

Many Americans have financial difficulties from time to time. According to NFCC.org, 62% of U.S. adults have carried debt in the last 12 months, and 27% of Americans admit they don’t pay all their bills on time.

In addition, in 2020, more households carried credit card debt from month to month than back in 2019. In 2020, 43% reportedly carried month-to-month debt vs. 37% in 2019.

The good news is that some Americans reported they would reach out to non-profit credit counseling centers for assistance. 62 million Americans said they would get help from a professional non-profit credit counseling agency if they had financial problems related to debt.

I personally think this number should be higher! There’s no shame in reaching out to the experts for help when you need it. Financial counseling exists for the very reason to help people with their finances.

How does financial counseling work?

If you’re considering financial counseling, you may be wondering exactly how the process works. Overall, you’ll work with a financial counseling agency to create a plan to pay off your debts. This would also include counsel around budgeting.

Your financial counselor will be an advocate for you during the process. They will reach out to your creditors to negotiate bill payment terms and other details of your plan.

After discussing your finances, you and your counselor may decide to set up a debt payment plan. This is where you and your creditors will agree on a plan for you to repay your outstanding debts. This may include you agreeing to make specific monthly payments and your creditors agreeing to debt negotiation.

The terms of the debt payment plan will be set up based on your unique situation with your input. You won’t be forced to do anything.

You may also have discussions about your credit that could fall under credit counseling. This is where the financial counselor would help you craft a plan to improve your credit or direct you to the right resources.

Maybe you don’t owe thousands but have decided that now is the time to get out of debt for good. Credit counseling can be a good idea for anyone that has debt. In addition, it can offer tips and tricks, so you avoid credit trouble in the future.

Where to go for financial counseling

There are many reputable non-profit financial counseling centers that you can go to for help. Non-profit agencies typically offer free or very low-cost financial counseling services. So you have nothing to lose and everything to gain.

Consider a national financial counseling service like Operation Hope, or a non-profit counseling service in your state.

If you don’t know where to start, try the Financial Counseling Association of America (FCAA) to start your search. They will set you up with one of their affiliate counseling agencies based on your state of residence.

What to expect from a financial counseling session

You will spend 30 minutes to an hour at your financial counseling session. The session can be done over the phone or in person. So, if you feel more comfortable meeting remotely, you can totally do that. Here is a step-by-step overview of what you can expect at your financial counseling session:

1. Provide demographic information

You’ll provide basic demographic information like your name, phone number, and state where you reside.

2. Review financial documents

You’ll bring your financial information with you,  including your income, assets, and other financial documents. You’ll also bring a detailed list of your expenses.

3. Credit bureau report

Your counselor will most likely pull your credit bureau report so you’ll know your current account balances. This will be a “soft” pull of your credit report so that it won’t impact your credit score like a “hard” inquiry.

4. Discuss your financial situation

The counselor will review your financial situation and help you understand your options regarding debt repayment and debt relief solutions.

5. Create a debt payoff plan

You’ll work with your counselor and your creditors and come up with agreeable terms to pay off your debts. For instance, consolidating your debt into a smaller payment or lowering interest rates.

6. Feel empowered to take action

You’ll leave the session with an action plan and you’ll feel empowered to work towards a solid financial future.

Benefits of getting financial counseling services

There are numerous benefits to getting financial counseling. Here are some of the biggest benefits you'll see once you get financial counseling.

Gain financial literacy

Overall you’ll have a greater knowledge about financial matters and make better decisions with your money. Learning more about your finances can help you manage your money wisely.

In addition to financial counseling, get educated further about financial literacy by reading books and listening to financial podcasts.

Improve your credit score

Financial counseling will help you get your finances in order, which will drastically improve your credit score. Reducing your debt and paying bills on time will have an excellent impact on your credit.

Also, getting help tackling your debt can help you avoid having your accounts go into collections. Finally, getting help in time can also help you avoid bankruptcy.

Improve your mental health

Financial counseling can also help improve your mental well-being because you’ll alleviate money-related stress and anxiety. Getting your money right can also help you combat financial insecurity, preventing you from making poor financial decisions.

Get the help you need from financial counseling

Whether you’re a recent college graduate who needs help with student loan repayment or you’re a retiree who has a few questions about the best way to handle your home mortgage, financial counseling can be a great resource to help you understand money matters.

Just make sure you do your homework before signing up and choose a reputable non-profit financial counseling agency. You can get started creating your debt repayment strategy with our completely free course!

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