Credit Counseling
Debt counseling and credit counseling are terms usually used interchangeably because they're so closely connected. Credit counseling services are designed to inform individuals on debt and the ways to use credit wisely. The services of debt counseling are offered to people who haven't followed sound financial advice or had credit counseling in the past and are currently facing a large amount of debt they can't afford to pay off.Credit counseling involves analyzing both current income and living expenses and working out a budget to fit a person's needs and goals. Your assets and debts will be scrutinized to determine your financial well-being and advice may be offered to improve your financial well-being. Credit counseling helps you learn better income management skills and may extend suggestions to help you prevent common financial problems.
Debt counseling encompasses helping borrowers who've taken on too much debt and are having a difficult and almost impossible time making all of the monthly payments. Two basic versions of debt couseling exist - not-for-profit organizations that typically offer credit counseling and go on to show you methods to get out of your major debt and for-profit organizations who also give credit counseling but then for a fee take on the responsibility of helping you out of your unfavorable debt situation.
The goal of debt counseling is to aide you in finding the optimal solutions to your financial worries. These include:
- Avoiding the necessity of declaring bankruptcy.
- Protecting your paycheck from being garnisheed and averting legal action.
- End calls from collection agencies.
- Get sound financial help from knowledgeable persons.
- Reducing or completely eliminating interest on debts.
- Reducing your monthly bills to a rational level.
Debt counseling will commence with a review of a person's earnings and living costs to find out the magnitude of the case. Then you and your counselor will determine a method to deal with the situation. You will first make essential decisions such as what expenses you can eliminate and/or reduce (perhaps trading down to a less costly automobile or eating out much less often). After a honest evaluation of your situation you will craft a budget that you are required to live with.
Once you've set the budget you'll know if there's enough funds to steadily get your debts back under control. In the event that it is concluded that there is not enough money around to make full monthly payments to your creditors, but there's a fair amount to make a reasonable monthly payment you'll be required to fashion a plan to pay off your debts over a long period of time. If you are still in such poor form following the review of your debts that bankruptcy is the only way to go then that option will have to be looked into.
Assuming that your situation is bad enough that you're unable to make full monthly payments to your creditors but not bad enough that you have to declare bankruptcy, a debt repayment plan might be in order. The best and cheapest way to straighten out your credit, especially if your debt load is well below $5000 and you have enough discipline not to get into a larger amount of debt until you have your finances under control, is through your own efforts. Suffering silently is never a wise move. Swallow your pride and talk to your creditors to work with them; they are aware that obtaining some cash is better than receiving none and they'll attempt to agree to your requests. Creditors know that a person ready to negotiate a debt provides them with a better deal than somebody who disregards their obligation and are typically fairly willing to come to an agreement for less than what's owed. For instance just talking to the creditor and informing them of your financial issues might result in them offering a temporary lower interest rate. Other strategies include the use of a credit card balance transfer, which is when a company takes your credit card debt from another credit card company and provides a lower interest rate.
If you feel that you are unable to look after your credit problems yourself then you can always go to a credit counseling firm who will do all of this for you. For-profit counseling organizations will create a fair payment schedule on your behalf. This plan could include a reduced payment schedule to creditors and a decrease in finance charges, late fees, and over-draft fees, that the creditors will usually grant. Each month you make a payment to the credit counseling company, who then deliver payment to your creditors. A good amount of creditors make small payments to credit counseling services, but the client's payment goes 100 percent towards the reduction of the debt in most cases.
Your credit score may be down because of your poor debt handling. Typical signs of bad debt management that in the end lower your credit rating include: you went bankrupt, you have several lines of credit, you aren't keeping up with your bills, etc... Both debt management and credit counseling are seen as positive steps toward getting rid of your debt and fixing your credit. If you stick with your plan and avoid building more debt you will be able to raise your credit rating that much sooner.