Many people assume that credit counselling is fundamentally different and unrelated to debt consolidation. However, I can tell you that it’s more related than you might think. In fact, credit counselling can play an important role in helping you make your debt consolidation process smoother. To find out how they are related, let’s first go over what the best debt consolidation loan and credit counselling do.
[1] How does debt consolidation work?
If you have several debts that need paying off, it is difficult to track them all at once. A consolidation process is handy for combining all your existing debts into a single loan, which you can pay off through EMI. Here, you borrow money from a new creditor or lender, which you then use to close your previous debts. After that, you only need to pay one interest rate for the balance transfer account. Further, you will only have to focus on repaying the new creditor from here on.
However, it is important to remember that even after consolidation, you are still taking on a debt, which means you still have to pay back all the money you owe. Further, there might be operational fees, maintenance fees, and other charges that you should clarify with your bank or lender.
[2] How does credit counselling work?
This is where customers are provided with advice and action plans on managing funds, debts, and budgeting to better guide their credit scores. Suppose you’ve had difficulty budgeting and planning your EMI and debt repayment plans. In that case, you can seek out credit counsellors who provide you with financial strategies to help you pay back your loans. They can also help you keep your credit score high by helping you plan out your repayment schedule. Their main aim is to prevent you from reaching bankruptcy.
Some counselling services may negotiate with your creditors to help negotiate lower interest rates and waive any fees. However, you should exercise caution because several debt settlement scams pose as debt consolidators. In negotiations, always ensure that the credit counsellors are looping you through all critical discussions and negotiations.
[3] How does credit counselling help with debt consolidation?
Managing your funds is arguably the most important part of being debt-free. A credit counsellor can devise a financial strategy that works for you. For instance, if you’ve been struggling to meet your EMI deadlines, a counsellor can tell you how to divide your income so that you can be consistent with your repayment.
They might suggest that you allocate funds according to the 50/30/20 rule to save up for the loan elimination. Not only will this help you prevent penalties and additional charges due to defaults, but it will also improve your credit score in the process.
However, you must remember that this process will only work if you can source the funds for your repayment without further debts.
Signing off
Strategising your finances is one of the most important skills you can inculcate early on. Finding the best debt consolidation loan is crucial. But, that’s not all; a good spending habit can help you get out of debt earlier and prevent you from falling into future debt cycles.
A credit counsellor can help you through this by reviewing your debts, interests, and tenure in great detail to devise a comfortable repayment plan. They might also be able to negotiate with your creditor for a lower interest rate at the get-go. All you have to do is associate with the right professionals.
Signing off and wish you well with your debt-elimination journey!
