 What is Credit Counseling
Do you live from paycheck to paycheck? Are you using balance transfer checks from one credit card to pay off another? How many times you have used overdraft on your checking account? These questions may be uncomfortable to tackle but one of the most important elements of financial success is being able to confront your fears and negative issues.
Remember, the most terrible things about debt is that most people have no idea how much it actually costs to live their lives on a monthly or yearly basis. Most people don’t have the skills to understand the volume of trouble that cumulative interest can cause on financial health. On top of everything, once you get in debt and don’t do anything serious to handle it, your debt load is constantly rising with seemingly no end in sight. But at some point, it has to stop and if you are still reading this article, you definitely have a resolve to address your financial issues. |
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If your financial life has become out of control, you may benefit from professional help. Remember, you still have the sole responsibility to take charge of your financial life but professional help can make a big difference in the final outcome. Credit counseling usually have the same effect as what a personal trainer would on your weight loss program. For some people, amount they owe is much larger than others but the distress is all the same. Whether a person is $2,000 in debts or over $150,000, each is suffering from the same distress, same lack of sleep. The most common reason people get in trouble with money is their poor money management skills. Let’s face it – many of us are just one or two paychecks away from financial ruin.
Now how do credit counseling programs fit in this picture? Credit counseling programs are voluntary programs where a credit counseling agency acts as a neutral third party and ask your unsecured creditors to accept smaller payments generally over a longer period of time. They work with creditors to eliminate or reduce their interest rates so thatmost of your payments will go towards the principal and not the interest. With the help of a good credit counseling agency, you will be out of debt lot sooner than on your own. And you will have repaid 100% of your debts.
A credit counseling process involves a full review of your financial situation. What do you own, what do you owe, how much money do you have coming in and where is it all going? The questions aren’t complicated but finding the answers can be. What does that coffee habit cost you? What do you spend on clothes and shoes over the course of a year? What do you spend on gifts in a year - including Christmas, birthdays, grading, anniversaries, Valentines Day, Easter etc. And how about those bank fees? The list goes on and on. All this before you even start talking about debts.
Good credit counselors are detail oriented individuals and work diligently to get all the information about your particular situation and come up with some options for you to consider. What do you need to go forward? There are a number of possibilities; a mortgage refinance, a consolidation loan, selling some assets, better money management or doing more with what you have. Credit counselors spend a good deal of time on budget and money management issues. Their job is not to judge you on how you got into debt. What
matters is making a change and going forward. They can’t tell people how to spend their money but they can usually show them a balanced budget for basic living expenses. In most cases - something’s got to give and it’s up to the individual consumer to decide where and how to reduce expenses. Ultimately they are working to make sure you know know where you’re spending your money – the choices are yours to make.
As we pointed out earlier, professionally trained and independently certified counselors evaluate your financial situation, assist you in creating a budget, and work with creditors for a possible reduction in:
In confidential sessions, they will review your current situation and collaborate with you to determine the best possible financial strategies. They will help you develop your own money management plan so that you can do more with what you have. The debt management or credit counseling program will help you simplify your monthly financial commitments. Credit Counselors will consolidate your payments into one monthly payment and disburse to your creditors on your behalf. Counselors will provide you with a budget analysis to help you determine if the credit counseling program is right for you. They will also provide you with ongoing counseling and education throughout the life of your program and after you complete the program to make sure you are staying on track. If a credit counseling program is the best option for you, counselors will provide you with all the resources you need and help prioritize and allocate your money and work with you to deal with your financial situation.
Even though their primary objective is to assist individuals and families with all aspects of their credit difficulties, credit counseling programs are not free. Most have a one-time fee for enrollment. There is also a monthly maintenance fee per account with a minimum and a maximum value. For example, if you have 10 credit card accounts and agency is charging you $3 per month per account, your monthly total fee would be $30($3X10= $30). Fees may be waived or discounted depending on your state’s regulations, or if you are a full-time student, veteran, active military or senior citizen (age 62 or older).
Dark side of Credit Counseling
Some people would argue that credit counseling is not really a “counseling” as it is more closer to a creditor than a borrower. In simple terms, 'counseling' refers to a helping relationship between equals, a relationship characterized by openness, honesty, and empathy and so-called consumer credit counseling or debt counseling is not really counseling at all. More often than not, credit counseling is an exploitative and highly lucrative relationship in which the 'credit counselors' works for the benefit of creditors (those who have lent money) to ensure that debtors (those who owe money) can continue making interest payments to the creditors, preferably (from the creditors' point of view) for as long as possible.
Remember, this may sound unfair or even cruel to some people, but you have no one but yourself to blame for your debt. If you don’t have money to purchase something, just don’t do it. Trying to make your ‘present” life better on the promise of future income is always a red flag and you should be very careful making any decision based on future income. However, if you’ve already in trouble and don’t want to file for bankruptcy, you can benefit from reputable credit counseling firms.
We suggest you take utmost caution in considering the services of any type of credit counselor or even debt consolidator, but reputable firms do exist which can be a great help to individuals at risk of serious financial difficulties due to debt. Their aim should not be to keep you coughing up interest payments month after month; rather, it should be to help you erase the principal of the loan as quickly as possible. Remember: if you are considering the services of any such firm, you will actually be viewed as a very valuable potential customer, so you can expect to be treated that way. If someone offering help in this area does not treat you respectfully and as a very valuable customer, you should not be afraid to look elsewhere!
Please note that Fiscalwealth.com does not offer any type of financial advice, including credit advice or debt consolidation advice. This page merely explains some of the background of 'credit counseling', and we expect you to use utmost caution when considering Credit Counselling or Debt Management services. |
