Getting out of debt can be challenging, especially if you have little experience in managing your finances and need support. Using a counseling agency can be a great way to get debt relief. The agency can possibly negotiate reduced interest rates for you to pay back all your unsecured debt. You then make a single monthly payment to the credit counseling firm, which assumes responsibility for paying your creditors. "I would always recommend a non-profit credit counseling agency," advises April Lewis-Parks, Director of Education and Public Relations for Consolidated Credit. "The consultation and budgeting advice is always free, so it's an educational service. They will give you a range of options usually, because everybody's situation is different." Keep in mind that there may be a fee for those who sign up for a debt management program with one of these agencies.
The challenge many consumers face is completing their repayment plans, because the repayment period can span up to five years. Adjusting your lifestyle to suit reduced disposable income for such a long time can be hard, so it is vital to work with a budget.
Credit counseling agencies are there to help, but it is your responsibility to meet agreed monthly payments. Your budget should include all your periodic and yearly expenses, such as one-off payments for gifts or automobile repairs. It is also wise to open a savings account for emergencies, with 10 to 15 percent of your net income deposited there for future use.
In the case of a huge financial demand, such as a mortgage or student loans, it's important to contact credit agencies and discuss your options. They may be able to negotiate your monthly payments for these debts to ease your cash flow. "The benefit of working with a credit counselor is that [they] can help you be proactive in the process of consolidating your debt or renegotiating with your lender in what can sometimes be something that might be too overwhelming on your own," says millennial money expert Stefanie O'Connell. "It's kind of like having a personal trainer for your finances."
Repaying debt isn't easy, but with the right support and a considered approach, it can be cleared.
If you want to settle outstanding debts for less than what you owe, try our debt settlement tool.