When should someone seek credit counseling? This question seems easy to answer. People should seek credit counseling when they are falling behind or can no longer pay their bills. Is this the only point when people should seek credit counseling? No. People normally know when their financial situation has taken a turn for the worse. The problem is too many want to live in a fantasy land called Denial.
The signs that we need to consider credit counseling could include any of the following:
Falling behind in paying bills Maxing credit cards Seeking new loans to delay making payments on existing loans (moving money around) Constant arguing with family members about money Persistent anxiety over money
A point often overlooked is that credit counseling comes in two forms. One type of credit counseling is the traditional service of seeking assistance from non-profit counseling services such as those offered through the National Foundation for Credit Counseling or for-profit debt management companies easily located online.
Traditional credit counseling services contact creditors for a change of terms in repaying debts. Creditors generally agree to lower payments and lower interest in exchange for guaranteed payments each month. The company collects a monthly lump-sum payment from the consumer that covers all creditor payments and the monthly fee for the service.
A person considering this option needs to do his or her homework first. Research the agency or debt management service to understand the services they offer and the limitations on those services. For example, credit counseling will not make negative marks disappear on a credit report. Only time can do this and negative marks remain for seven years while bankruptcies remain on credit report for ten years. A positive note is that the older the marks the less influence they have on a credit score.
A negative in using credit counseling and debt services is that if the agency appeals to creditors to change the terms of payment the information will be reported to the three credit reporting agencies and will lower credit scores. The good news is that scores will increase over time as balances fall and late payment move father into the past.
The second type of credit counseling involves credit management and budgeting. Credit counseling could come in the form of seeking assistance with budgeting. Perhaps this should be the first step when financial problems arise because this could prevent the need to take further action. Numerous sources are available to assist with budgeting. Seeking this type of credit counseling will not affect credit scores.
The point is that seeking credit counseling is a necessity at times. The ideal scenario would be to seek assistance with credit management and budgeting before financial matters become such that actions become more drastic. However, credit counseling is preferred to bankruptcy.