Learn When Credit Counseling May Be Worth It
In many American households, for a wide variety of reasons, debt has become a prominent — and incredibly stressful — topic. Too many of us are living paycheck to paycheck and supplementing our income with credit cards. This leads to a debt load that can quickly hit tens of thousands of dollars without the requisite income to cover them.
It can be a vicious cycle. Those who are trapped in it may have a hopeless feeling there is no way out. However, that doesn’t have to be the case.
One way to attack this problem is through credit counseling services. If you find yourself ignoring bills because you don’t want to see the total, hiding bills from a partner or spouse, or you’re already getting calls from debt collectors, you might be a good candidate.
It bears mentioning that not all credit counseling organizations are created equal. To avoid the countless scammers preying on the credit-strapped, you will want to make sure you select a legitimate service. A great place to start is the National Foundation for Credit Counseling (NFCC), a nonprofit organization that certifies offices and organizations.
There is a difference between credit counseling and debt management, although the two very often go hand-in-hand. For starters, credit counseling is almost always free, at least with most reputable sources. They will offer the services of a financial expert with whom you can review your debts and budget and start to build a plan to attack your debt.
Debt management is a separate service that is typically provided for an additional fee. Your provider will contact your creditors to negotiate lower interest rates and payment amounts. You pay the debt manager a monthly fee that they distribute among your creditors.
While debt management absolutely has its place, for today, we’ll just be looking at credit counseling. Let’s review the pros and cons.
The Pros of Credit Counseling
- A neutral party gets involved. It can be hard to find the wiggle room in your own budget. With emotional detachment and financial expertise, credit counselors can give you an honest assessment and make suggestions about places you can trim your budget to pick up the extra cash you need to pay down your debt.
- You get a reality check. There is no denying a visit with a credit counselor can be an unpleasant experience. But you can’t fix what you refuse to acknowledge, and you need a clear picture of your current financial picture as it is, not as you wish it was or want to pretend it is. This is a crucial step toward repairing your finances.
- You leave with a plan. One of the reasons many people fall into debt is that they have no solid plan in place for how to manage their finances. Laying it all out on the table and putting together a reasonable, detailed plan — instead of just winging it every month — can make all the difference.
The Negatives of Credit Counseling
- You actually have to do it. Just sitting down with a counselor isn’t going to magically fix your finances. They can help you form a plan and write a budget, but it is up to you to follow through. If you aren’t committed to changing how you spend and manage money, credit counseling is a waste of time.
- It’s not a quick fix. The odds are good you didn’t find yourself in financial trouble overnight. Fixing it won’t happen overnight, either. Depending on how much debt you need to pay off, it could take years to get yourself back onto solid financial ground. All the calls, bills and “attempts to collect a debt” that you’re getting right now won’t stop just because you saw a credit counselor.
- You still have to talk to your creditors. In many cases, one of the best ways to get your debt under control is to negotiate lower payments or interest rates, just like a third-party debt manager would. This means getting on the phone with all those people who keep calling you and working out a compromise. If you are making a real effort to pay them back, most will be willing to work with you, but don’t expect them to reduce a $200 minimum payment to $20. If you suggest that you can pay $100 a month, however, you might have a deal.
In the past, credit counseling required a “walk of shame” into the credit counselor’s office with your binder full of unpaid bills. And while that is still an option, today, there are other, less stigmatizing routes to take as well; specifically, online and even by phone.
So if you are underwater and just want someone to help you chart the best path forward, don’t let the stigma keep you away. Find a credit counselor you feel comfortable with, make a plan, and then commit to sticking with it. In a few years, you’ll look back and wonder how you ever let your finances get out of control to begin with.