Debt Counseling: How it Can Help You
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If you’re among the millions of Americans struggling with consumer debt, a debt counselor may be able to help you get your finances back on track. Dafne Torres, director of customer care at the Florida-based nonprofit InCharge Debt Solutions, says debt counselors work with clients on a variety of financial issues.
“We have clients who are looking to buy a home, so they’re trying to improve their credit and have more money available,” says Torres. “We have other clients who can’t afford their monthly payments or are seeking assistance with their interest rates.” (However, debt counselors generally can’t make your loans disappear entirely or negotiate student loan debt or money owed to the IRS.)
Here’s a look at some of the services offered by debt counselors:
- Debt counseling: Counselors can typically advise you on credit card debt, home-foreclosure prevention, and in some cases, help you determine if you can afford to buy a home.
“We go through their financial situation, do a budget and create a personalized plan, providing the pros and cons of each solution,” says Torres.
Some debt counselors are approved to conduct a bankruptcy pre-filing credit counseling session, which is required before you can officially file for bankruptcy. InCharge, for example, charges a small fee for bankruptcy counseling sessions, but the other counseling options are free.
- Debt management:In a debt management program, the debt counselor negotiates with each of your creditors to get a lower interest rate and to consolidate your loans. You send a monthly payment to the debt management program and they disperse funds to all your creditors. (There’s usually a fee for this, so the savings on interest rates should outweigh your monthly fee for the debt management program.)“Normally, we see a monthly payment reduction of $100 to $150,” says Torres. “When it comes to interest rate savings, that’s where the big savings come in. We can help them pay off an account in five years that would have taken them 20. Sometimes, they can save $10,000 to 13,000 throughout the period of their loan.”
All too often, says Torres, people get in over their heads before seeking out a debt counselor, which is often at the suggestion of their lender.
“The majority of people wait until it’s too late,” she adds. “It’s a little bit embarrassing to have to call someone that you don’t know and tell them you’re struggling with debt. By the time they do it, it’s really because they’re forced to.”
However, debt counselors can help even before you find yourself drowning in debt.
“People can call us at any time,” says Torres. “We can help them in any facet of their life, even if they don’t have a lot of debt but they just need some guidance.”
If you are working to improve your financial situation, consider these suggestions on how to reduce your debt. Even though you think certain financial options may be out of reach, it may still be a good idea to think of ways to save for retirement, as well. Visit MyAllstateFinancial.com’s section on College and Retirement Savings Plans and IRAs for more information.