What is Credit Counselling and How It Can Help You
Ketki Jadhav
Apr 14, 2022
Listen to What is Credit Counselling and How It Can Help You
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Technology has made taking credit cards and loans a lot easier than it was before. People, especially millennials, recklessly spend on their credit cards, take multiple personal loans, app-based loans, and eventually find themselves in a debt trap by splurging the borrowed money on shopping for branded clothes, buying expensive gadgets, eating out, etc. With heavily borrowed money by way of credit cards and personal loans, it can become nearly impossible to clear the dues if the salary is not adequate in comparison to the expenses made.
Borrowers do not realise that while technology and competition in the market have made availing of loans easier, no one will help you to repay the out-of-capacity borrowed funds. However, taking the help of credit counselling can help you in debt management, which would otherwise seem impossible.
What is Credit Counselling?
Credit Counselling includes a range of services that are aimed at helping people with their finances. The major work that the counsellors do is to establish debt management plans for the people who have fallen into a debt trap or are struggling to meet their loan repayments obligations. However, that is not the only service they offer. Money management, guidance on small business owners' loans, budgeting, bankruptcy counselling, homeownership, etc. are some of the additional services the credit counsellors offer.
A credit counselling agency or a credit counsellor could be non-profit or for-profit. Non-profit credit counselling is generally provided by counsellors or agencies that are affiliated with the government or professional organisations like banks. They do not charge any fee for the initial counselling. However, a small fee may apply for corresponding sessions or for setting up a debt management plan.
A for-profit credit counsellor or agency, on the other hand, charges fees to use their services right from the initial counselling sessions.
What are the services offered by the Credit Counsellors?
It is necessary to understand that the non-profit and for-profit counsellors may offer different services, and it is advisable to learn about the services they offer before starting the counselling. Here are some common services offered by the credit counsellors:
1. Debt Management Plan:
If you are on the verge of falling into a debt overhang or are already in a debt trap, a credit counsellor can establish a debt management plan for you. It helps you consolidate all your debts at a lower interest rate and reduced fees. This way, your debt gets streamlined as you will have only one monthly repayment, potentially with a lower interest rate. It will also reduce the chances of missing any repayment, which will avoid paying huge late payment charges.
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2. Student Loan Counselling:
Student Loan Counselling is another popular service offered by credit counsellors. Under this counselling, the counsellor helps the students and/or parents right from suggesting the multiple options for loans to making a repayment plan. Student counselling is advisable if you are planning to take an educational loan, especially for studying abroad or high-value courses in India.
3. Homeownership Counselling:
Buying a home is a big financial decision. Credit counsellors can analyse your profile and help you take the necessary steps to ensure you are financially prepared to take the plunge. Homeownership counselling is also provided for borrowers who are struggling to repay their home loans.
4. Small Business Counselling:
If you are an inexperienced small business owner, you might need help with financial things, such as budgeting, managing cash flow, opting for loans, repayment of business loans, etc. Credit counsellors can help you with the basics of financial management by proving required training and counselling so that you can better manage the small business finance on your own.
5. Bankruptcy Counselling:
Before filing bankruptcy, it is advisable to do bankruptcy counselling with a credit counsellor, who will explain to you the advantages and disadvantages of filing bankruptcy for you and how it will impact your credit rating and overall finances.
6. Counselling on Credit Reports:
Credit counsellors review the credit reports generated by credit bureaus and help you find the errors that might be negatively impacting your credit score. They also guide you on the necessary steps to be taken to improve your credit score.
What is RBI's Role in Credit Counselling?
The RBI focuses on the need for credit counselling for increasing the viability of credit, especially in the relatively underdeveloped areas of the country. The central bank had advised the State/Union Territory Level Banker's Committees in 2007 to set up financial literacy and credit counselling centre in the State/Union Territory, coming under their jurisdiction. After gaining sufficient experience, these banks were advised to set up such centres in other districts.
The Banking Code and Standards Board of India (BCSBI) provides credit counselling to borrowers. The board does not charge any fees from the borrowers. However, the counselling is provided only to those meeting the criteria:
Procedure to Get Credit Counselling Through BCSBI:
If you are seeking credit counselling, you may directly apply to BCSBI in the prescribed application form, which is available on the official website of the BCSBI. Member banks can also advise borrowers to approach BCSBI if they think the borrower's loans are in default or need credit counselling. The credit counselling services are available at Reserve Bank of India Building, C-7, 4th Floor, Bandra Kurla Complex, Mumbai - 400 051.
If you need loan restructuring, the credit counsellor will prepare a debt management plan in consultation with your bank/s. The bank has a right to reject the plan or accept it with modifications.
You, the borrower, do not have to worry about your personal details as the counsellors maintain full confidentiality of the information received from you and the bank/s. Besides, the Nodal Officer of the bank keeps track to ensure there is proper coordination between the banks and the counsellors, and the speed and efficiency of the process is maintained.
Apart from this, if the credit card company or bank is harassing you for repayment, you can complain about it to the BCSBI and the RBI. The guidelines on recovery agents are available on the RBI's website.
To Conclude:
India had been conservative about borrowing money for many years. But now society has transformed as the young generation's spending habits have changed. With easy access to credit cards and loans, youngsters binge-borrow without thinking of its consequences. If you are burdened with multiple debts, most financial experts advise you to close the high-interest loans first. Typically credit card loans and personal loans have the highest interest rates. Hence, it would help you save on the interest amount if you pay off these loans first. Borrowing money against security like gold, mutual funds, property, etc. can help as these loans generally have lower interest rates. If possible, you may also think of lending interest-free from your friends or family.
Using the credit cards responsibly and avoiding taking high-cost personal loans unless it is an emergency is a key to avoiding falling yourself into such a critical situation of debt overhang.
Warm Regards,
Ketki Jadhav
Content Writer