If you have significant credit card debt, then chances are that getting rid of it as quickly as possible is one of your biggest priorities. After all, debt creates stress, costs you more money due to interest, and stands as a major obstacle between you and your long-term goals. This begs the question, can credit counseling help?
Sometimes, your debt is something that you can handle on your own, with good budgeting and some smart decision-making. But in other cases, the situation may be a little more difficult to manage, and you might benefit from some professional help.
Let’s take a look at why credit counseling is perhaps one of the most legitimate resources, and why it stands out from other debt relief options. I’ll also tell you how we help our clients over at ClearPoint, one of the nation’s leading credit counseling agencies.
How Does Credit Counseling Work?
Credit counseling is the chance to talk to a professional about your finances, without any pressure or costs. There are other programs associated with credit counseling (more on that in a minute), but the basic service is simply a one-on-one conversation with an objective counselor who can review each line item of your budget. Here are some additional benefits:
- You receive a free FICO credit score.
- The counselor reviews your credit report (there’s no negative impact to your report in this process).
- You can learn about nonprofit resources in your area that you may not be aware of and that offer additional assistance.
- You walk away with a personalized action plan that will help you improve your finances.
What About Debt Management?
For some people, the conversation can stop after the initial credit counseling. After all, some of us just need a game plan for how to make our budgets more efficient, and then we can pay off our debt.
But for others, the counselor might recommend a Debt Management Program (DMP). People who are good fits for this program, usually have more than $15,000 in credit card debt and a debt to income ratio that’s higher than 15 percent.
To calculate this ratio, simply divide your monthly take-home pay by your monthly debt payments (excluding your mortgage). A Debt Management Program helps by:
- Reducing interest rates on the accounts.
- Shortening the payoff time to 3-5 years.
- Only requiring one payment to ClearPoint, which we then distribute to your creditors.
- Creating peace of mind and a structured routine.
- Providing continuing education and counseling as you work through the program.
For many clients, they save thousands of dollars in interest and years of stress as a result of this program. In addition, they quite frequently improve their credit scores.
How Does Credit Counseling Compare to Other Options?
If you have significant debt, you might explore other options like debt settlement and debt consolidation. Each of these has its own set of problems, though. It’s too much to discuss in great detail, but the gist of it is this:
Debt settlement: This program typically requires you to ignore payments to your creditors in order to get the debt settled. Doing so can ruin your credit score quickly and you’ll also be hit with taxes and fees.
Debt consolidation: This type of debt relief involves taking out a new loan to pay off previous debts. This can take many forms, from balance transfers to HELOCs, and they vary in how financially dangerous they are. They certainly can work for some consumers.
The problem, though, is that they don’t address the behavior that created debt in the first place, and if a consumer makes any mistakes along the way, the debt may end up being much more costly in the long-run.
At the end of the day, you have to decide the best course of action for paying off your debt. Hopefully, it’s something you can manage on your own, but you shouldn’t feel ashamed for deciding to work with a pro.
If you make that decision, I hope you’ll consider credit counseling, because it brings so many free benefits, and even it’s paid programs are more advantageous for your long-term financial health than other quick fix methods.
Guest post by Thomas Bright of ClearPoint
Thomas Bright is a blogger for ClearPoint, a nonprofit agency that has been helping consumers achieve financial health since 1964. You can reach ClearPoint at 800.750.2227 or by visiting www.ClearPointCCS.org.
