What is Credit Counseling?

What is credit counseling? How can it help you if you have a problem with paying off you debts?

Credit counselors can give you confidential advice about your financial options. They can help educate you about money and credit management as well as other specific topics about debt that you may need advice about like bankruptcy and housing (mortgages, foreclosures, etc.).

In addition to consumer education, credit counseling can help people by providing them with a Debt Management Plan (DMP). The DMP is a repayment plan that may help to reduce monthly payments to more manageable levels. This is done through renegotiating with creditors such as credit card companies and banks to:

• get lower interest rates
• reduce or waive finance charges
• stop collection calls
• bring delinquent accounts back to current status

Unfortunately, many people seek out credit counseling services as their very last resort. Ideally, you should get counseling when you start having financial problems. Why wait until you are close to bankruptcy? It’s best to get a handle on your debt situation before it becomes impossible to manage.

You should definitely seek help when you start having the following problems:

• You cannot pay even the minimum amount on your monthly credit card bills.
• Collection agencies are calling you about your overdue accounts.
• Your savings and emergency fund are completely wiped out because you used them to pay your bills.
• More than one account is overdue because you have had to pick and choose which bills to pay since you can’t seem pay them all on time.

These are obvious signs that a financial meltdown is imminent. Some less obvious warnings signs that you should also heed before your financial situation becomes dire are:

• Debts are 20 percent or more of your monthly income.
• One or more of your credit cards are maxed.
• You’ve been forced to stop putting money in your savings account, retirement plan, children’s college fund, etc. due to having no money left over after paying your bills and monthly expenses.
• Family and friends are avoiding you because you borrow from them a lot.

The first step towards fixing your money problems is to be honest with yourself and know that you are in a bad financial state. The next step is to do what you can to improve your situation. Figure out where you can cut expenses. Be more disciplined in spending your money and pay off as much as you can. Credit counseling can also help you pay off your debts. 

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