When To Seek Credit Counseling

5 April 19

Credit Counseling

Professional credit counselors are highly-trained individuals who can give you smart money-management advice and teach you how to put together a workable budget. These are skills you will need to know if you want to succeed at getting out of debt and staying that way in the future.

Signs that you may want to consider credit counseling

Everyone's financial situation is unique. However, there are some common indicators which might suggest that professional credit counseling could help. The following situations frequently exist when debt problems go from serious to overwhelming.

  • You pay for everyday living expenses such as food and gas with a credit card (when you used to pay with cash loan)
  • You live from paycheck to paycheck with no money left over
  • You have no savings (and no retirement fund)
  • You use credit cards to make other credit card payments
  • You make only the minimum payment on credit card bills
  • Your financial situation affects every part of your life
  • You have no way to handle an unexpected financial emergency (medical situation or car repair, for example)

Money problems can creep into nearly every part of your daily routine. The constant worrying and stress over your financial situation can cause sleeplessness, anxiety, depression, and a host of other emotional and physical ailments. If the list above accurately describes what you are going through, it may be time to consider professional credit counseling.

Financial problems can be overwhelming. But don't give up hope. It is possible to get out of debt. There's no denying that it will take time and determination on your part. If you have tried to deal with your debts on your own and find that you are still struggling, credit counseling may be the logical next step.

What A Credit Counselor Can Do

The purpose of a professional credit counselor is to provide struggling consumers with sound financial education and specific debt advice. These services can range from something as simple as formulating a reasonable budget to putting together a debt management plan (DMP) to consolidate unsecured debt, such as medical bills and credit card debt. Credit counseling offices are not allowed to renegotiate student loans.

For credit card debts, credit counselors cannot lower your outstanding balance but many times they can get the late-payment charges and over-limit fees removed. They may also be able to lower your interest rate. If you are receiving calls from a collection agency, working with a credit counselor will usually stop the collectors from contacting you.

If you decide to go with a debt management plan, this generally means that the credit counselor will negotiate with your creditors on your behalf. In most cases, you send one payment to the credit counseling agency and it pays your creditors based on the negotiated agreements.

Here are some important factors to look for in a credit counselor:

  • They should give sound, clear advice on how to manage your money. If you don't learn better spending habits you will never get out of debt.
  • They should tell you the fees for their services upfront. You want to reduce your debt, not increase it.
  • They should notify you of what specific services they offer. Maybe you just need advice on how to prepare a budget. Or want to take a workshop that discusses money-management skills. Be wary of companies that only offer debt management plans as a solution to your financial problems. (they only charge you fees to pay your creditors)

Warning Signs To Look For

While most credit counseling agencies are dedicated to helping struggling consumers, there are instances where companies are solely interested in making a profit from someone else's financial problems. If you experience any of the following situations when contacting a credit counseling agency, you should look elsewhere for financial guidance and help:

1. Extraordinary Promises - If an agency promises to settle up with your creditors for pennies on the dollar, you should be very skeptical. Also, if a company says it can wipe out your student loans or tax liens, be very cautious! Student loans and tax issues are not negotiable through a credit counseling service.

2. High Fees - Agencies which charge large upfront fees or high monthly commissions may be more interested in making money for themselves than helping you.

3. Late or Missed Payments to Creditors - If you have chosen a debt management plan, you should expect your credit counseling agency to make timely payments to your creditors.

Important Points to Consider

There are some important things to consider if you do choose to use a credit counseling agency. Most plans which are offered through a credit counselor involve negotiations with your creditors. Usually this results in late charges and fees being removed and lower interest rates being applied going forward.

However some plans, such as debt management plans, can be noted on your credit report for up to seven years. Also, your accounts are generally closed under this plan which can seriously affect your credit score.

The stress that comes with dealing with financial problems can be enormous and overwhelming. If you choose to use a credit counseling agency to help you through this difficult time, make sure you find a reputable company that offers what you need to succeed. You deserve financial freedom and a professional credit counselor can help. Investigate different companies so that you can be confident in your choice. Be on the lookout for scams. You don't want to end up deeper in debt than you are now.