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The answers to your Credit Counseling questions are answered here. You will find new tips and useful advice from our helpful list of F.A.Q.s from people like yourself.
Q: How do I find a good credit counseling service?
A: Due to a few bad apples, the credit-counseling industry is under enormous scrutiny from both the government, and private consumer-interest groups. Although this is bad for honest credit counselors (and even worse for the not-so-honest ones), it's great for you, the consumer. Search the Web sites of the Federal Trade Commission (www.ftc.gov) and the Better Business Bureau (www.bbb.org) for "credit counseling" and you will find all you need to know, including complaints against individual credit-counseling firms.
Secondarily, you can tell right away if a credit-counseling service is legitimate by evaluating the promises it makes. Does it sound too good to be true? If so, then it is. No one can make your debts and/or bad credit disappear, and no one can save you 90% or more -- even 50% is really stretching it. Good credit counselors can typically save consumers 10-35% on their monthly payments, so if a firm promises to do much more, be skeptical of their claims, and of them as a company.
Q: How do I know if I need credit counseling?
A: If any of these statements apply to you, then you may need credit counseling. The more statements that apply, the more likely credit counseling is needed:
- I frequently miss my monthly payments on at least one credit card or other debt
- I have several credit cards, all of which are at least 90% maxed out
- I have at least one credit card that's currently over its credit limit
- I have one or more credit cards that have exceeded their allowable balance and incurred overage charges at least twice in the past twelve months
- I make the minimum payments on my cards, but finance charges and other surprises typically send me over my credit limit, incurring an overage charge on top of that
- I have trouble making the minimum payments on my credit cards
- I'm behind on my mortgage, car loan, or other debt
- The principal and interest on my debts cause me to miss other important payments -- like rent, the electric bill, or car insurance
- I'm considering bankruptcy
Q: What do I need to sign up for credit counseling services?
A: Technically, "credit counseling" refers to a wide range of educational services provided by credit counseling firms, and to receive most of these services, there are little or no requirements. However, people typically use the term "credit counseling" to refer to the debt-management services offered by many credit counseling firms, and in order to enroll in a DMP (debt management plan), you will need to be able to verify your identity. In addition, you will need to produce all necessary data on your current debts, such as your most recent statements, and you may be required to provide your banking information.
Q: How can I get myself out of credit card debt?
A: Getting out of credit-card debt can be a lot easier than it seems -- if you're able to use discipline. First, you need to resolve to curb your credit-card spending. Commit to only using your credit cards to buy things you absolutely need, and that you'll be able to pay off, in full, at the end of the month. If you're unable to do this, either because you need more than your current income and expenses allow or because you simply lack the will power, then you will not be successful in getting out of credit-card debt on your own -- you'll need a little help.
But if you are able to curb your credit-card spending, the next step is to ensure you can pay at least your monthly minimums on each of your credit cards, each month. Cut back where you need to. Instead of buying a $4 latte every day, brew your own coffee at home and drink it before you leave each day. Otherwise, the price of that latte can end up being a lot more than $4!
If you're able to curb your spending and pay at least your minimums, the next step is to save a little extra cash each month and apply it toward your debts. Even if it's only $20 a month, it will go a long way when allocated in the most effective manner possible. But most people can find a way to sock away an extra $5 every workday, which works out to more than $100 a month.
But what do you do with the extra $100? Simply apply it to the credit card with the highest interest rate and you'll see that balance drop like a stone! When you only pay the minimums, the bulk of your payments are going towards interest, which is why your balances never seem to go down -- paying an extra $100 takes a flat $100 extra off your balance each month!
It's important to note here that you must keep paying the same payment on each of your cards, each month. As your minimum payments chip away at your balances, the minimum payment required will drop, but this is a trap -- don't fall for it! Keep on paying the payment you've gotten used to and more of your payment will go towards paying down the balance.
When you finally get your first credit card paid off, take the total monthly payment (your original minimum + $100) and apply it to the card with the next highest interest rate. Repeat this process and in little time, you'll be credit-card debt free.
Of course, this plan can't work for everyone. Many people are so deeply in debt that they can't even pay the minimum payments on their cards, let alone save up an extra $100 each month. For these folks, services such as credit counseling, debt management, and debt settlement should be looked into.
Q: What is the difference between credit counseling and debt management?
A: Technically speaking, debt management is an element of credit counseling -- just one of the several services credit counseling firms offer to the public. From a practical standpoint, however, the terms are virtually synonymous. People frequently use the term "credit counseling" to refer to the establishment of a debt management plan (DMP). This "misusage" of terminology is now so common that you have to just judge by the context of the sentence whether someone really means credit counseling, or if they're actually using it as a synonym for debt management.
Q: Will credit counseling affect my credit?
A: Credit counseling can mean many things, but when most people use the term, they're referring to debt consolidation or debt management plans. When you enter into these programs, a credit counselor will collect all of your bills and then contact each creditor and let them know that you are working on paying. They then negotiate with each creditor to have late fees waived or have your interest rates lowered. You then make payments to the debt management company so that the calls from creditors stop. But how does this effect your credit?
Well, it will show on your credit report that you didn't pay off your creditors according to the terms of your original contract. All the accounts that are involved with your debt management plan will be marked as, ""does not pay account as agreed."" This might sound threatening, but it's actually a lot better than a ""charge-off,"" how your credit report is marked when you fail to pay at all, or especially a bankruptcy.
It's always best, of course, to pay your bills on time each month, but that's just not always possible. Problems crop up, and despite your best intentions, you might get behind on your bills. If you can keep on top of your debts, do so, but if you've just fallen too far behind, credit counseling can really help. So if you use a credit counseling service, you will have a blemish on your credit report, but it can be much less serious than the alternatives, especially that last resort, bankruptcy. Always consider all of the angles before you start a debt management plan.
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