Credit counseling is a service provided to consumers for assistance with the management of and recovery from debt. A credit counselor specialized in credit repair options and can evaluate your personal debt situation. They offer concrete and sensible solutions for immediate relief from bills and creditors. They also should provide you with a methodology for managing your finances and empower you to head off debt in the future.
Debt options and tools available to you
1) Debt management programs (DMP’s)
credit counseling Debt management programs are essentially budgets, but include a payment program for your current bills and debts. In a debt management program you do no take on any new loans or debt. Instead you pay everything you owe on a monthly schedule. Debt management programs can be effective in avoiding a more serious financial situation by putting your bills into order and planning how you spend your money. Your credit counselor will evaluate your debt to income ratio, how much your expenses are versus how much your income is, and based on that information make a budget with you. This budget will include payment due dates and amounts to help avoid late payments which will damage your credit history. The budget outline will show you where your money is going each month and help to keep your spending under set limits.
2) Debt consolidation loans
Debt consolidation loans are loans used to take all your existing debt and bundle them together into a single lump sum. This sum is then borrowed against in the form of a consolidated loan. The money provided by the loan is used pay off all those bundled debts at once, leaving the borrower with just a single monthly payment on the new consolidated loan.
3) Debt settlement
Debt settlement is a way in which your debt can be significantly reduced. This is accomplished by negotiating with your creditors to drastically reduce your owed amounts, oftentimes up to 75%. A credit counselor will take your current bills and inform your creditors that you are unable to pay. They will then offer the creditors an amount to settle the account. Most creditors when faced with the option of losing the account entirely to a collection agency will take a lesser offer on the amount you owe. There is a downside to this option as some of your accounts may be reported as settled on your credit report indicating you did not make full payment.
What you can do for yourself
credit headaches need credit counselingWhile all the above options can be done with the assistance of a credit counselor keep in mind you can do them on your own too. A debt management program is nothing more than a detailed budget which you can do yourself and stick to if you are financially disciplined. Make a list of your expenditures and income and look for areas where you are overspending. Find a budget sample here and try it. Instead of working with a lender on a debt consolidation loan, you can simply take a personal loan and do the same yourself. Use the money you borrow to pay off all your debts and then just make the payments on your new loan. Finally debt settlement can also be something you can do on your own. You already know to whom you owe money, contact them yourself and inform them of your financial predicament. Your creditors will work with you just like they work with debt counselors to look for a solution. Always keep in mind that you know your personal financial situation better than anyone. With a little research and time you can accomplish many of the same things a credit counselor can without them.