Understanding Debt Counselling: Your Path to Financial Freedom (2024)

FAQs

What are the disadvantages of debt counseling? ›

Your counsellor will look at everything you owe and will negotiate with your creditors for a more affordable repayment rate and even better repayment terms.

Debt counselling will very likely improve your credit score because it will show that you have consistently made your payments on time during the process.

Clarify your goals, motivations and have a positive mindset that you can achieve financial freedom. Have an automatic cash flow and bank account system that includes a budget to identify your discretionary expenses, non-discretionary expenses, and savings plans.

Once the debt counsellor issues Form 17.2, you are committed to debt review until you can prove to the court that you are no longer over-indebted. However, once the debt rearrangement order is granted, the only way to exit debt review is by paying all your debt. You may then apply for a clearance certificate.

It can reduce debt-related costs.

You'll then make one monthly payment to the counseling agency, and they'll pay your creditors on your behalf. The service will likely come with a monthly fee, but it could be worthwhile if you're able to lock in lower interest rates or waive certain creditor fees.

“Form 17.2” – accepted notification to credit providers that the consumer's application was successful. “Form17. 2” rejection – notification to credit providers that consumers' application was unsuccessful. Withdrawal notices from your debt counsellor (“Form 17.

Many debt management plan (DMP) providers charge a fee for their services but some don't. It's important to remember that if you don't want to pay a fee, you don't have to.

Spot and avoid scammy debt settlement or debt relief organizations — whether they're offering credit counseling, debt settlement, or any other service. Never pay any group that tries to collect fees from you before it settles any of your debts or enters you into a debt management plan.

A reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a firm doesn't do that, consider it a red flag and go elsewhere for help.

What is the success rate of credit counseling? ›

This is a hard figure to track since the credit counseling industry does not publicly report their success rate. But industry insiders report success rates of 20% to 25%. (See this article: Does Credit Counseling Work?) Debt Settlement.

Debt consolidation can be an effective tool for managing debt and improving financial well-being. While the specific impact on your credit report may vary depending on the method used and individual circ*mstances, debt consolidation generally remains on your credit report as long as the accounts are open and active.

The 4% rule for retirement budgeting suggests that a retiree withdraw 4% of the balance in their retirement account(s) in the first year after retiring, and then withdraw the same dollar amount, adjusted for inflation, every year thereafter.

Increasing your income – while keeping the spending levels constant or in check – is one of the fastest ways to reach financial freedom. This requires you to continuously work on advancing your career or your business.

Debt settlement cons

Debt settlement companies can charge fees. The creditor may require you to close the account, which will result in losing access to that credit line. The amount of forgiven debt may be considered taxable income by the IRS, so there may be tax implications.

Some potential drawbacks to seeking counselling may include the cost, time commitment, and the possibility of facing uncomfortable emotions or memories. It is important to carefully consider these factors before starting therapy to ensure it is the right choice for you.