What is credit counseling, and how do you know if it’s right for you? Examine your financial situation. Do you frequently miss monthly payments on at least one of your credit cards or other debts?

Do you have several credit cards which are all close to maxed out? Do you have a credit card that’s currently over the limit, or have you paid overage charges for exceeding your limit in the past twelve months?

Do you make the minimum payments on your card, but still end up going over due to finance charges or other surprises? Are you behind on other types of debt, like a car loan or mortgage? Do you have trouble paying even the minimum payments on your credit cards? Do you have to skip other payments like rent or utility bills just to stay on top of your other debts? Have you considered declaring bankruptcy? If you answered yes to more than a few of these questions, credit counseling could be a good solution for you.

So what is credit counseling, exactly? In the simplest terms, it’s debt education. A credit counselor will sit down with you and look over what you owe, and in most cases they will help you create a debt management plan (DMP). When you enter into a DMP, your credit counselor will negotiate with your creditors and explain that you are working on paying your debts. Usually your credit counselor can get your creditors to reduce your interest rates and often forgive late fees and other charges that you’ve accrued. Then you only have to make one payment to the credit counseling company, rather than making payments to each of your creditors.

While participating in a debt management plan doesn’t hurt your credit score, it may affect your chances of qualifying for new credit while you’re enrolled in a DMP. What does hurt your score score is being late with any payments. Making timely payments and successfully completing a DMP can actually improve your chances of obtaining credit in the future.

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

This entry was posted on Wednesday, December 23rd, 2009 at 12:01 pm and is filed under Credit card. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.