Do You Need Credit Counseling?

A credit counseling agency can help you make consistent debt payments, which will reflect positively on your credit report and can be influential for your credit applications in the future. The company will give you the help that you need to get peace of mind and a concrete way to get you back to financial health.

Credit counseling services are usually nonprofit organizations, funded by creditors. Most credit counseling services get their fees from a portion of payments sent back by creditors. This makes credit counselors look like a tool of the lending institutions.

How Credit Counseling Services Work

A debt counselor can help you draft a debt repayment plan, outlining what you need to do to clear all of your outstanding balances. He or she calculates your income along with any unforeseen financial setbacks, such as medical expenses, when making up this plan.

In some cases, an agency might buy the debt from your creditors. In other cases, the company negotiates with your creditors to extend grace periods, to temporarily suspend collection, or to accept a reduced lump sum. But in both cases you make single monthly payments directly to the agency.

Credit counselors can help you get out of debt, but they can't totally erase any past damage to your credit report. Although past bad credit can remain on your report for several years, working with a credit counseling agency can still help you get approved for credit at some point in the future.

Should You Work with a Credit Counseling Agency?

Before you consider working with a credit counselor make sure you understand your financial status and whether the company can offer real help.

When your debt piles up beyond a certain point, there seems to be no realistic way to pay it off. You need a helping hand in order to get you back on your feet. But you don't need a credit counseling if your interest rates are too high as you usually can negotiate a lower rate with your credit card companies.

Once you've determined if you'll be able to work with the firm, you can start repairing your credit rating by letting the credit counselor consolidate your debt. Through a debt management program you will be able to make consistent payments against your outstanding balance. This will reflect positively on your credit report and can help you get approved if you apply for credit in the future.

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