Comprehending Credit Counseling

It’s a fact that this pandemic has been difficult for many of us, especially when it comes to financial matters. Personally, I use my credit cards more now than before the pandemic started (which I know is bad), and I’m sure I’m not the only one who is in this situation. I know I’m not supposed to rely too much on my cards but when you’re cash-strapped, your options become quite limited.

If you’re struggling with credit card debt, credit counseling can help you gain control. Credit counseling is when someone is advising you on how to manage your debt and credit. A credit counselor will work with you to help you improve your individual financial status. Part of that may involve offering resources to help you recover control over your money.

Credit counseling can help consumers handle many different situations. According to the National Foundation for Credit Counseling, agencies can provide services such as credit and debt counseling, housing and mortgage counseling, student loan debt counseling, etc.

However, there are things that you first need to keep in mind:

Learn the Benefits of Credit Counseling

The benefits to credit counseling are reduction of monthly payment, reduced interest rates, removing finance charges, relief from collection agencies, formulating a plan that will have you debt free in les than 5 years, and ability to pay multiple debts in one monthly payment.

Find a Good Credit Counseling Agency

Be wary of debt relief scams. Avoid credit repair and debt settlement agencies and only do business with a credit counseling agency that’s accredited by the National Foundation for Credit Counseling (NFCC). Plus, don’t trust credit counseling agencies using a nonprofit status too much. Just because a company is non-profit doesn’t always mean that it’s a good agency.

Is Credit Counseling Right For You?

Credit counseling isn’t right for everyone. Consider credit counseling if you have more than 20% of your take home pay going to unsecured debt, such as credit cards, and you’re having trouble making the payments. Also consider it when you’re starting to feel depressed because of too much debt.

Be Informed of the Risks of Credit Counseling

You may take a short-term hit to your credit score when you get credit counseling because they require you to close all of your credit card accounts, although technically credit counseling itself doesn’t count against your credit history. Your credit score can drop if you close
all of your accounts. Worry not, since more often than not, your credit score bounces back quite fast, as the outcome of making on-time payments and lowering your credit usage.

Using a credit card will no longer be a choice. Since your accounts will be closed, you no longer have any credit cards. This will force you to take your finances seriously and take drastic steps to make real changes.

Everybody’s financial situation looks quite different now because of COVID-19. Seeking credit counseling is a step in the right direction.