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Thursday, February 22, 2018  
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How Can Credit Counseling Help in Debt Management?

Scott Bilker Scott Bilker is the founder of DebtSmart.com and author of the best-selling books, Talk Your Way Out of Credit Card DebtCredit Card and Debt Management, and How to be more Credit Card and Debt Smart. Receive the 5-Year Loan Spreadsheet when you subscribe to his email newsletter.

Credit counseling is touted as one of the most effective ways to take hold of excessive debt levels. For customers drowning in debt, the best advice is to pay down the high-interest debt as quickly as possible. Unfortunately, it’s not always easy to implement sage advice when emotions and finances are in disarray. On a positive note, there are fail-safe techniques that can be employed to help relieve the stress of debt.

Credit counselors often discuss a myriad of ways to bring down overall levels of debt, including Debt Consolidation. This is the process by which credit card debt is reduced by applying for a single loan at a lower interest rate than the prevailing APR. The loan is used to pay down credit card debt and then the cost savings generated through the lower interest rate can pay down the principal.

How Effective Is Credit Counseling?

When the right advice is offered to a responsive client, credit counseling is a valuable resource. Various nonprofit agencies currently exist with the sole purpose of providing smart financial sense to reduce stress and debt. Credit counseling is designed to relieve the burden created by credit card debt. Typically, the debtor will seek the professional services of a credit counselor to create a debt management strategy. This serves as your blueprint to paying down credit card debt and easing your financial obligations in this regard.

The general rules for customers seeking relief from credit counseling services tend to show that within 3-5 years, regular credit card payments will reduce credit card debt and improve a person’s credit score. A multitude of credit counseling agencies are currently operational, and customers are advised to seek out the best services through the Better Business Bureau (BBB). Not every credit counseling service is accredited, and some of them did not pass the litmus test with the Attorney General’s Office. Nonetheless, it’s important to note that you should never be paying for credit counseling.

The National Foundation for Credit Counseling assists in the provision of free credit counseling services. However, companies that assist with debt management fees will be subject to payments. As a rule, any business that asks for upfront fees before they provide credit counseling services should be avoided. Plus, the term nonprofit is not necessarily an indication that the company does not charge for its services. It simply means that the company’s income and expenses do not generate profits. Management could simply run up debts while charging high fees for credit counseling services.

Be Honest about Your Current Debt Levels

Careful evaluation of your personal financial situation is important before you seek the assistance of a credit counselor. In other words, be honest about your debt. All debts should be included in your debt management strategy to ensure that you paint an accurate picture of your personal finances. Companies that offer debt settlement services for profit are not credit counseling specialists.

Many fly-by-night operations promise to eliminate bad credit or create a new credit identity for customers, and the majority of them are simply scams. The value of credit counseling as an effective debt management tool is limited to your ability to implement the debt management plan effectively. If you don’t follow the advice and guidelines of the debt counselors, the plan will be rendered ineffective.

Debt management is a time-consuming process. You will require at least 3-5 years to emerge from your debt and eliminate things like credit card debt, personal loans, and other lines of credit. Bankruptcy is often touted as a solution to bad debt problems, but it is an expensive process that could potentially ruin your credit for 7 – 10 years.

Rather than declaring yourself bankrupt and paying exorbitant attorney fees, it is better to work with a credit counselor to formulate a debt management plan. The golden rule in all instances is to live beneath your means. Frugal living ensures that you will not rack up high levels of debt in the future. One of the problems with credit card debt is that it is revolving debt; you’re paying interest on interest, and with high APRs, t is difficult to emerge from this type of burden

This entry was posted in Credit Counseling. Bookmark the permalink. Read more articles by Scott Bilker. (Also see articles by all authors and articles in all categories.)



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