When to Consider Credit Counseling

Credit counseling is growing in popularity and is a good way to pay off your credit card debt. However, it is not your only option when it comes time to get out of debt. Knowing when to use a counseling system is important.

Credit Counseling Basics

In order to decide whether or not you want credit counseling, you first need to understand what it is. When someone signs up for credit counseling, they are not taking an easy way out. There is still a long road ahead and it requires a commitment.

A credit counseling service will talk to your creditors on your behalf. They will arrange a payment plan that is more realistic for you. They will negotiate the interest rate on your accounts, which will save you money and cut down on the payoff time. During this period, you will not be able to use your credit cards or open any new accounts.

Assess Your Situation

The first thing you need to do is look at your current situation. Examine your debt and determine where you are financially. If you can answer yes to these questions, there is a good chance that you are a good candidate for credit counseling:

  • Do you have several credit cards that are all maxed out?
  • Do you have medical bills piling up on top of the credit card bills?
  • Are you late on multiple payments?
  • Are you paying 25% interest on all of your cards?

Look at Your Options

Keep in mind that a debt consolidation will affect your credit score negatively. Typically, a credit score suffers during the repayment period.

Also, you will not be able to use your cards until your debt is paid off. In many cases, this can amount to five years or more. In some cases, it may be better to look at other options.

Other Ways Out

If you have been in your house for years, it may be to your advantage to take out a home equity loan. You can then use the equity in your house to pay off your cards and your credit score would not have to be affected.

Another method you could use is borrowing against your insurance policy. If you have had a whole life insurance policy for a number of years, there is a good chance that you have enough cash value to borrow against it. The interest you pay will be smaller than any other type of loan you could get.

The most important thing is that you take control of your debt. Change the habits that got you there and credit counseling can help you get back to square one.


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