Debt counseling

0:01- So in this video, we're gonna go into a little bit more detail of what services you can use to help you manage your debt, especially if you find yourself in a situation where it's feeling a little bit overwhelming. So the two categories of organizations that you might turn to, one is generally called debt counseling and the other is called debt settlement.

0:22Now it's very important to know the difference between the two, even though they sound very similar. Debt counseling, this is usually coming from community organizations, your bank, not-for-profit organizations, many of whom have accreditation from the federal government.

0:39So generally, organizations that you can feel are good, that they aren't gonna take advantage of you. And what they're going to do is they're not going to try to get your debt canceled, but they will help you manage it. So when you meet with a debt counselor, sometimes called a credit counselor, they will look at all your bills, they'll try to work on a budget with you, try to help you think about what you need to spend on, what you don't need to spend on, and then help you think about how you might wanna pay off that debt.

1:07And it might involve what's known as a debt management plan. And a debt management plan is very interesting. There might be some relatively small fees. I'm talking about 25 to $50 a month. And, you know, even that's not a joke. You shouldn't just, you know, pay 25 to $50 a month to someone without really knowing what you're getting.

1:25But once again, these are organizations that for the most part are valid and can be trusted. And what they do is they would allow you, I shouldn't say consolidate, that's a different thing, but they would work through your debt so that you can pay them one amount of money every month, and then they will go to your different creditors and pay the right amount of debt.

1:49And so that has the advantage of simplifying things for you, helping you manage that debt. And also these counselors, these debt counselors, credit counselors often have, because their trusted parties, have relationships with the credit card companies, with the mortgage companies where they might be able to even get your interest rate lowered.

2:08In certain situations, you might be paying 20 or 25% annual interest rate for a credit card. But now the credit card company knows some of these debt counselors, they know that it's much more likely to be paid back. The risk is lower. And so they might lower that interest rate so that it's more than just organizing and simplifying things.

2:26It actually can have a direct financial benefit. Now that's debt or credit counseling. On the other side, or actually related, but different is debt or credit settlement. Now this can be a useful thing, but you have to be very careful. A lot of times if a creditor, someone that you owe money to says, "Hey, you know, it's very unlikely "that Sal's gonna be able to pay this money back.

2:50"I'd rather get something than nothing." They might be willing to negotiate a settlement. Maybe you owe $10,000, but they're like, "There's no way you're gonna pay $10,000." But maybe they say, "Well, you can pay 5,000," and it's a win-win for both parties because at least they're getting some money, but you have to pay less.

3:09Now, there's a lot of reasons to be very, very careful here. One is you'll see ads from organizations. Many of these are for-profit companies that are going to say, "Hey, we can help you "cancel your debt. "Just talk to us or pay us this amount of money," et cetera, et cetera.

3:24And so they aren't going to be necessarily as clearly incented to as help you. Some of them can be. And then the other thing is, when you get debt settlement, it doesn't come without repercussions. You definitely could, it could ding your credit score still because you had to settle your debt.

3:46And so I would go into that world very carefully, make sure that the folks that you're working with have a good track record. They're not charging exorbitant fees. They know that they can help. My recommendation is if you're feeling overwhelmed with your debt, first, go to the counseling services, the not-for-profit organizations, your bank.

4:06There's some work with veterans and try to work out if you can work out something with them that's not going to hit your credit rating, they might be able to get your interest rate lowered. They might be able to simplify things, help you budget, and then if, and actually they could probably give you good advice on whether you should even go into the settlement world, which can work out for some people.

4:27But be very careful and make sure you validate the folks that you're working with and all of the bills and fees and any repercussions that might happen to your credit score.