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Credit Counseling for Debtors: Why It Works

Are you a business that’s struggling to get payments on time? You’re not alone. In these tough economic times, many businesses are finding it harder than ever to collect debts. 

The global pandemic didn’t make it any easier as businesses ran into a number of roadblocks from supply chain to being understaffed. Fortunately, we’re coming out of some of that, but the question remains. 

How do you improve your debt collection outcomes? One effective tool is to offer credit counseling to your debtors. (Sounds crazy, but read on to learn more.) 

Credit counseling is a process whereby a trained and certified credit counselor works with the debtor to create a budget and set up a payment plan. The goal of credit counseling is to help the debtor get out of debt within a certain timeframe. But how does this help the creditor? Let’s take a look.

1. It Helps the Debtor Understand Their Situation

The first and most important benefit of credit counseling is that it helps the debtor understand their financial situation. Often, people are in debt because they don’t have a clear understanding of their finances. They may be living paycheck-to-paycheck and not even realize it. Or they may have no idea how much they owe in total. 

This can even be true for businesses! After all, a business is only as healthy as the minds and the organizational abilities of the people running it. 

Credit counseling gives the debtor a clear picture of their financial situation. This knowledge can be empowering and motivating, leading the debtor to make better financial decisions and stick to their payment plan. 

At the very least, it places you into a better position should you have to pursue debts through the legal system. Being able to show a court that you’ve done everything in your power to help the debtor can go a long way with judgments. 

2. It Helps the Debtor Develop a Budget

Another benefit of credit counseling is that it helps the debtor develop a budget. This budget will show the debtor where their money is going and where they can cut back in order to make room for their debt payments. 

For many people, this is an eye-opening experience that leads them to change their spending habits for the better. Now, it’s unlikely that a B2B or B2C customer will want to open up all of their finances to a creditor. But offering tools and calculators, for example, can help you get ahead of things. 

By helping the debtor understand what they can afford on the front end, they’ll be less likely to bite off more than they can chew. 

3. It Helps the Debtor Create a Payment Plan

Finally, credit counseling helps the debtor create a payment plan. This payment plan will detail how much the debtor needs to pay each month in order to get out of debt within a certain timeframe. 

Too often, debtors get frustrated by the growing burden of their financial responsibilities. If they’re not particularly organized, they’re more likely to throw their hands up and say the heck with it. Empowering them with the knowledge they need to keep their payments on track is a proactive way of not getting caught in the fallout from that. Having a plan in place will help keep the debtor on track and motivated to pay off their debt. 

You Are Not a Credit Counselor But Acting the Part Can Get You Paid More Quickly

If you’re struggling to collect debts, consider offering credit counseling services of some type to your debtors. Credit counseling can help the debtor understand their financial situation, develop a budget, and create a payment plan. These benefits can lead to improved debt collection outcomes for your business.

Not sure where to begin? Southwest Recovery Services has a depth of knowledge that you can benefit from when it comes to educating your customers and keeping them on track and on time with payments. We’ve been getting our clients paid quickly for a number of years, and we’re ready to do the same for you. Contact us today, and we’ll talk about all the ways that we can help you get more revenue pumping into your business.

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