Debt Management

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What is Debt Counseling?

What is debt counseling?

As many people face up to their debts and realise that they might just be in financial trouble they may ask themselves: ‘What is debt counseling?’ This is a daunting question for many as financial problems and a fear of the unknown can combine to make the first steps towards financial wellbeing shaky ones at best. It is helpful for any consumer to know what to expect before they seek debt counseling and the important thing for them to remember is that the majority of debt counseling services are there to offer genuine help and an opportunity to save money in the long run.

So what is debt counseling? Basically, it is a service offered to the consumer to give advice on how to avoid getting into debt or, if they are already in the red, how to get out of it as cheaply and easily as possible.

What can a debt counseling service do for you?

Most people find themselves overwhelmed by debt because of poor money management, unwise financial decisions or simply by not knowing the tricks of the trade. For example, consumers can save themselves hundreds of pounds a year if they take out a bank loan to pay off a crippling credit card debt.The difference in interest rates between the two is significant, and the savings can be too.

The first step in any debt counseling process is the drawing up of a debt management plan (DMP). This weighs a consumer’s incomings and outgoings, examines disposable income, reviews spending and other factors to calculate if the debts can be met. When they can, a monthly spending plan is drawn up that should be kept to. If a consumer is unable to keep up with repayments then the debt counseling may involve negotiations with creditors to agree a solution, such as reduced payments over a longer term. One of the chief benefits of debt counseling is that it is recognised by many financial institutions. Some banks and credit card companies will even reduce interest rates if a debtor proves they are following a DMP.

One of the biggest dangers for people in financial trouble is acquiring a bad credit rating. Continuous missed payments and bad debts are kept on record and can lead to an individual being refused credit at every turn. Debt counseling services can help prevent this by a process known as “reaging” or “curing” an account.