Are you feeling totally overwhelmed by your debts and have no idea how to take control of your finances? Have you tried some of the self-help options such as transferring high-interest credit card debt to one with a lower interest rate? Perhaps you have attempted the “snowball” method—where you pay your debts in order from lowest to highest—but fell short.
Consumer credit counseling
If you have been unable to turn around your financial situation on your own, it might be time to consider credit counseling. There are many advantages to using this debt relief method.
For starters, you usually would be working with a reputable, nonprofit credit-counseling agency staffed with certified and trained counselors. Many of these agencies provide their services free or at a very low cost since they are funded by banks, credit unions, credit card networks, and civic-minded organizations.
How to find a reputable agency
Whether you use a local credit counseling agency or find one online, it’s important to go with one that will evaluate your finances, provide a plan for helping you get out of debt, and teach you ways to remain financially stable moving forward.
A trustworthy agency will likely review your budget and suggest improvements or additional cuts. They will also probably assess the state of your finances and determine how to keep up with your debts. Another solution might be revising your budget to generate more cash flow so that you can pay down balances faster.
If the agency suggests you pay off your debt through a debt management plan (DMP), they will typically explain in detail how the plan works and will go over its pluses and minuses. A legitimate credit counseling agency will also provide an idea of how much you will pay on your debt each month and how long it will take to become debt free.
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Pay a lot, get nothing in return
Unfortunately, there are some unscrupulous credit counseling agencies where you pay a lot of money and get little or nothing in return. In fact, many of the people who sign up with these agencies end up in worse financial shape than when they started. These agencies may often charge excessive fees and try to force their clients into debt management plans they don’t really need.
The secret of debt management plans
While consumer credit counseling agencies can help lower your payments and get better interest rates, it does have its negatives. If you use one of these companies to help manage your debts, you may be in a similar position as someone who has filed a Chapter 13 bankruptcy.
You may have to give up your credit cards and not take on any new revolving debt for the four or five years it will take to complete the debt management plan. And you will need to make your monthly payments without fail or your plan could be terminated.
Changing your behavior
According to the financial guru Dave Ramsey, the only real way to handle debt management is by changing your spending habits. This means exercising common sense and creating your own debt management plan. He feels it isn’t rocket science as some debt management companies might have you believe, and that it can be done through determination and with a smart strategy.
When common sense isn’t enough
While Ramsey gives good advice, there are circumstances where common sense just isn’t enough. If you are drowning in debt, you may need some “industrial strength” help in the form of debt settlement.
A debt specialist from National Debt Relief can explain debt settlement in detail and how it could help you become debt free in as little as 24 to 48 months.