Consumer Credit Counseling Basics

The facts are simple: prices for food, gas, housing, education, child care, and other common household expenses are rising much faster than incomes. That means that more and more people are facing huge debts and have little means to tackle them on their own.

Americans are also a can-do people. We want to be able to fix things ourselves. Unfortunately, many people’s attempts to straighten out their finances only make the situation worse. That’s where credit counseling can help.

How Consumer Credit Counseling Works

Debt counseling isn’t a one-size-fits-all fix. Instead, a certified credit counselor will review your personal finances, including all income sources, all expenses, and all debts, to determine which solution is best for you. They’ll work with you to figure out where you can trim expenses. They’ll also negotiate with your credit card companies to reduce your interest rate so you can pay off your debts faster. Finally, most offer budgeting and debt education materials so that you can avoid getting into debt again.

Debt Counseling Solutions

Many people who opt for counseling are enrolled in debt management programs. When you choose a program, all of your debts are entered into the program, and your credit is suspended. You’re also prohibited from applying for new credit. This ensures that you won’t be creating new debt while you’re trying to pay off the old debt. It also forces you to learn to spend wisely. Rather than pay your creditors directly, you make a single monthly payment to the counseling service, which then pays your creditors.

For those who either don’t qualify for debt management or for whom it’s simply not appropriate, counselors often also recommend debt consolidation. You’re still responsible for the bills, but the interest is usually lower and your payments are streamlined.

In extreme cases, a counseling service may recommend debt settlement. They will negotiate with your creditors for a reduced balance, which you then pay as if it were the total balance due. This has tax and credit implications, so it’s not the best option, but it may be the only option for very large debts.

If you’re hiding from your creditors, dodging bill collection, avoiding the mailman, and struggling to make ends meet, you owe it yourself to find out if consumer credit counseling can help you.

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