Understand How Debt Counseling Can Help You
You may be struggling to cope with the debt. You're not alone. The economic slump of the past few years caused many people who previously managed their debts to fall behind. Americans are now carrying over $2.4 trillion in consumer debt.
Loss of income, a reduction in working hours, or increased medical bills contributed to many people's problems. Maybe you borrowed too much before, taking advantage of the looser credit that banks and credit card issuers were offering. Even if banks were being irresponsible granting you credit, it is your responsibility to repay the debt or to suffer the consequences.
Debt counseling is an increasingly popular solution for Americans struggling with debt. There are a variety of debt counseling programs and services available. To find the debt counseling approach that works best for you, you need to do some homework, think about your goals, and find a program that you can realistically finish. You don't want to start a debt counseling program that you don't complete, because that won't solve your problems.
One kind of approach offers you 'common sense' sense wisdom like, "Stop spending," "Debt is not your problem, your spending is," and "You got yourself into debt, only you can get yourself out of it." Like most cliches, there is a grain of truth in these statements. If your debt was magically wiped out today and you repeated exactly the same behavior that got you into debt before, you would end up in debt again. What is missing from these cliches, however, is a broad view. Hard work alone, without a solid realistic plan, won't solve your debt problems.
It is important to know that there is help that exists for people with debt problems. If you get a helping hand from a debt counseling service and take steps to reform your spending habits, you can speed up the time it takes to become debt free.
The self-help gurus are correct that making sure that you don't run up debt again takes hard work. You have to take time to analyze your spending habits and live within your means. Does that mean never taking on debt? No, without borrowing money, most of us would never be able to buy a home or finance a college education. However, it is crucial for you to make a budget, to make sure that you have a solid plan in place to repay your debts. There are many budgeting tools available for free, including the Bills.com budget guide. Whichever budgeting tool you choose, don't skip this basic step to repairing and maintaining your financial health.
Accredited Debt Counseling Programs
There are two professional debt counseling programs you should examine. They are:
- Credit Counseling: Credit counseling is one type of debt counseling that has helped millions of Americans. Any credible credit counseling service begins helping you by thoroughly reviewing your income, expenses, debts and assets. If you are struggling with high interest credit debts, your debt counseling will like include a recommendation to enter a debt management plan (DMP). A DMP works by getting lower interest rates from your creditors, so you get out debt faster. While in this type of debt counseling program, you start reforming your habits, too, as you are not allowed to open up new lines of credit.
- Debt Settlement: Debt settlement is a more aggressive form of debt counseling. For debt settlement to work, you should have a financial hardship that prevents you from paying all your debts as agreed. A reputable debt settlement firm negotiates reduced balances from your creditors, so you can get out of debt in the shortest time and at the lowest cost while avoiding bankruptcy. Debt settlement harms your credit, because you choose to stop paying your creditors while in the settlement program. However, if getting out debt is more important to you than your credit score, it is one form of debt counseling you should examine.
Both credit counseling and debt settlement agencies charge fees, but both should offer you a no-cost financial review. State laws cap credit counseling fees. Choose only a credit counseling program that has professional accreditation, such as being accredited by the Council on Accreditation or the International Standards Organization. Make sure that the accreditation is up-to-date.
If you choose the right debt settlement firm, you will not pay a fee to settle any of your accounts until that account is settled. Only work with a debt settlement firm that is an accredited member of the American Fair Credit Council (AFCC), whose members observe the FTC no-advance fee rule.
Pre-bankruptcy Debt Counseling
In severe cases, bankruptcy can be your best debt resolution option. The law now requires that you receive debt counseling from a government-approved debt counselor within 180 days before you can file for bankruptcy. Bankruptcy has severe credit consequences. It should be kept as an option of last resort.
Free Debt Counseling
In some instances, free debt counseling services may be available. If you can't afford to pay for any professional help, don't give up. You may be able to find free or low-cost help if you are:
- Retired: Retired people struggling with debt should contact with the AARP for free debt counseling assistance.
- In the military: Active duty military personnel should speak with the JAG office. There are also some private firms that offer free debt counseling to active-duty military.
- Low-income: Low-income households may be eligible for free or reduced-fee services from professional debt counseling agencies or from a free legal-aid organization.