Is Credit Counseling Effective?

If you feel like you’re in over your head financially, don’t jump to claiming bankruptcy yet.

Credit counseling can be a good choice before you take the drastic step of declaring yourself bankrupt and possibly damaging your credit further for years. Credit counseling can help you get back on your feet financially and set you up with good money habits for the rest of your life.

Why Not Bankruptcy?

As mentioned previously, whenever you owe debts to creditors in large enough quantities, you may feel that temptation to simply make them “go away.” However, you got yourself in this mess and you should be responsible enough to get yourself out. This is where credit counseling comes into play. You can always take the initiative to resolve your accounts on your own, but if you know you have a problem with managing your money, you may need more extensive help.

How Does Credit Counseling Help?

Credit counseling assists you in deciding on the best method for paying off your debt. The counselor’s job is to give you an effective way to pay your debts and better manage your money in the future. Credit counselors will also help work with your creditors to negotiate payment plans and reduce your debt owed, as well as automate your payments.  Not everyone needs this form of assistance to help resolve their debts, but some do.

Who Needs Credit Counseling?

You might need credit counseling if:

  • You don’t know how to pay your debts. If you owe debts to creditors that you simply don’t know how to resolve on your own, then it is a good idea to ask for this level of assistance.
  • It is required as a result of a bankruptcy filing. Some individuals take steps toward bankruptcy hoping to wipe the slate clean, only to realize that credit counseling is required first to determine whether other alternatives are better.

It’s important to note that credit counseling may affect your credit report, as the negotiated payment plans may result in what referred to as a “slow pay” on your credit report.  This does, however, beat the alternative of missed payments or bankruptcy.

Debt Consolidation

Most likely, if you have a large number of debts owed, your counselor will combine them into one monthly payment; this is known as a debt consolidation plan. Typically, this type of plan lasts anywhere from 12-60 months and comes with a lower interest rate to pay the debts more quickly.

Again, using credit counseling to help pay when you owe debts to creditors may or may not be for you. So to determine it’s potential for effectiveness, it’s good to check around to see how different counseling services may be able to help you.