A Guide to Credit Card Counseling

A Guide to Credit Card Counseling
  • Reduce your spending and stop adding to your debt.
  • Stop using your credit cards.
  • Review how credit counseling can help you become debt free.

Credit Card Counseling Services to Manage Debt

Americans are carrying more than $2.4 trillion in consumer debt! This figure does not include any mortgage debt. Americans have over $700 billion in revolving credit card debt and $1.6 trillion in non-revolving short and intermediate credit debt. Unfortunately, 2005 bankruptcy reform laws made it harder than ever to eliminate debts through bankruptcy. Fortunately, you can still find a way out of debt, if you're committed.

Do-It-Yourself Credit Card Help

If you're drowning in debt, you have to stop using your cards. Just think, if you are carrying debt and using credit cards to pay for basic expenses, you are not only paying what the items cost, but all the additional interest charges for financing your purchase. Does it make sense to end up paying $50 for $30 worth of groceries? Also, you can't get out of debt when you are constantly adding more debt on top of it.

Paying cash is the best way to get a true picture of how and where you spend money while avoiding overspending. Paying cash curbs your spending because it feels like "real money" and because it forces you to only spend what you have. Once you've reduced your spending, you can devote more money towards paying off your debts.

Don't close your credit card accounts, as that will lower your score. Just stop using the cards; put your cards in the freezer. Then contact your creditors and ask them to reduce your interest rates. If your creditors won't lower your interest rates, then you should consider a debt consolidation loan as a way to reduce your interest rates and to streamline your payments. If you can't qualify for a debt consolidation loan, then it's time to speak with a professional debt counselor at a credit counseling service.

Professional Credit Card Counseling

When you visit a credit counseling service, don't expect a magic bullet that will eliminate your debts and allow you to keep spending the way you always have. Instead, you'll be expected to change your spending habits and work had to pay off your debt. Most counselors will walk you through the following steps:

  • Stop using credit cards. You can't get out of debt while you continue to create new debt.
  • Analyze your income and expenses. As the counselor goes over your budget with you, she'll recommend places you can cut your spending to free up more money for debt payments. For example, she may suggest canceling cable, eating out less, driving less, or not buying clothes, accessories, and entertainment products while you work on your debt.
  • Create a debt solution. Most counselors will recommend one of three debt solutions: credit card consolidation, debt management, or debt settlement.
  • With debt consolidation, the counselor will arrange for a personal or home equity loan that will be used to pay off your other debts. You'll then have the responsibility of paying off the consolidation loan.
  • With a debt management plan, all of your debts will be enrolled in a 2-5 year program. The counselor negotiates with your creditors to lower your interest rates. You then pay the service every month, which distributes the funds appropriately. You're barred from using the cards or acquiring new debt while in the program.
  • With debt settlement, your counselor will negotiate with your creditors to reduce the total balance due. This option is reserved for very serious situations because it will damage your credit history and credit score significantly. There may also be tax implications.

The solution recommended by the debt counselor depends largely on your current income, necessary expenses, and the size of your debt. Try to find the solution with the lowest fees and fastest resolution so that you can get out of debt and move forward with your new-debt free life.

You should also work hard to change your spending habits so that you don't find yourself in debt again. Ask your counselor for educational materials about budgeting, money management, and financial planning. The credit counseling service may also offer free or low-cost classes on controlling even your required expenses, like groceries. The more you save on your expenses, the more you have to pay off you debts.

If you need to get your debt under control, and the DIY options aren't working for you, contact a credit counseling service for help finding the best solution for you. You can get out of debt.