When to Seek Credit Counseling Services for Consumer Debt

Couples credit counseling session.Getting out of debt is hard. For many, turning to professional help offers the necessary support to get them on the road to success. When considering this route, remember the earlier the better. Reaching out for professional assistance before it is too late will help those involved assist you in the best manner.

Several debt management solutions exist in the world today, and navigating the options can be difficult. Below are some of the most common solutions, along with what to consider when thinking of turning to a pro.

Signs You Should Consider Professional Help

Not everyone needs credit counseling to help manage their debt. However, the following circumstances warrant giving it some thought.

  1. Credit card payments are rising while income is steady or decreasing.
  2. Unable to meet minimum payments.
  3. Using one credit card to make payments on another.
  4. You are at or very close to the limit on all your credit cards.
  5. You add more debt than you pay off each month.
  6. You are unsure how much you owe and afraid to find out.
  7. You have received phone calls or letters about delinquent bill payments.
  8. You are buying everyday things such as groceries with credit cards out of necessity.
  9. You are dipping into savings or your IRA to pay your monthly bills.
  10. You use your credit card not as a convenience but as a necessity.

If any of these sound like your current financial situation, take a look at the following solutions that may bring some much-needed respite.

Types of Credit Counseling Services

Most of the services offered to debtors fall under the umbrella of credit counseling – an individually tailored plan that provides guidance and support to those who need help getting out of debt. The goal most often is to avoid bankruptcy. However, credit counseling also offers an opportunity to gain education on financial management to help avoid getting into unmanageable debt in the future.

Many of these services also negotiate with a person’s creditors on their behalf to reduce interest or rearrange repayment structures.

– Debt Management Program

A Debt Management Program is another phrase often mentioned when discussing professional debt management. This is not separate from credit counseling, but instead, a tool used under the same umbrella. A DMP is a proposal usually made by your credit counselor agreed to by the creditors.

The DMP uses the money left over after developing an accurate budget with your counselor. The disposable income is directed towards the credit counselor, who in turn allocates it to the various creditors. The credit counselor acts as the intermediary, to help facilitate communications from both ends.

– Debt Settlement Programs

Debt settlement is the final term often discussed within credit counseling. This is a process by which a large, one-time payment is made for the forgiveness of any remaining debt. Although the thought of paying back less than what is owed is tempting, there are no free lunches.

Any amount forgiven is typically viewed as taxable income by the IRS, which can come back to haunt you, unless you file for bankruptcy. In addition, it will show up on your credit report for several years and make it very unlikely a lender will approve you for the most affordable loan during that time.

How to Seek Out the Best Credit Counseling Companies

As with anything else, it pays to comparison shop. Several companies offer credit counseling, and finding the best deal can take a little research. But don’t be fooled if the company claims to be nonprofit. This is often misleading, as these service providers may charge higher fees than other for-profit businesses.

According to the Federal Trade Commission (FTC), the following questions should be asked to any prospective credit counselor:

  • What services do you offer?
  • Will you help me develop a plan for avoiding debt issues in the future?
  • What are your fees?
  • What if I can’t afford to pay your fees?
  • What qualifications do your counselors have? Are they accredited or certified by an outside organization? What training do they receive?
  • What do you do to keep information about me (including my address, phone number, and financial information) confidential and secure?
  • How are your employees paid? Are they paid more if I sign up for certain services, if I pay a fee, or if I make a contribution to your organization?

Here is a list of approved consumer credit counseling agencies by state.

Have you used any debt management or credit counseling services in recent years? If so, did it help? We’d love it if you’d briefly share your experience with us and others seeking professional help, in the comments below. Thanks!

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Posted on February 24, 2021 by in Debt Management

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