Credit Counseling

Credit counseling can provide the guidance necessary to help you end lifelong bad credit habits that constantly leave you in credit card debt, or it can be yet another expense with nothing to show for it than another bill. The difference is the quality of the counseling and your own attitude and readiness to change.

Credit counseling can help you organize your money habits again.

How to Tell If You Need Credit Counseling

If you answer yes to more than three of these questions (for reasons other than emergencies such as medical expenses) you may need credit counseling.

• Do you live paycheck to paycheck even though you earn a good salary that you know should be more then enough for your needs?
• Do you often try and then fail to make and keep to a budget?
• When your credit card bill comes, are you always surprised at how much you spent?
• Have family members or friends expressed concern about your spending habits?
• Do you consistently have trouble paying off more than the minimum due on your credit cards because you spent the money you budgeted for paying off credit card debt?
• Is your credit score damaged because of your spending?
• Do you get new credit cards just to help pay the balance on your existing cards?
• Do you lose sleep over your spending habits or credit score?
• Are you scared to check your credit score?
• Do you hide or throw away bills because you are too scared to deal with them?

In addition, consumers must receive credit counseling before declaring bankruptcy.

How Can Credit Counseling Help?

Credit counseling often comes as part of a credit card settlement or other debt solutions. If you are concerned about your spending but not necessarily in debt and don't need credit card debt help, you may want to turn to a counselor who specializes in compulsive spending or other psychological or emotional issues.

Credit counseling usually comes as a package of services that involves helping you to:

• Set and keep to a budget
• Prioritize your spending
• Work with your creditors to create a repayment plan
• Consolidate debt into one single monthly payment
• Rebuild your credit

Picking a Credit Counseling Firm

Your bank or other financial institutions may be able to recommend firms, or you can ask trusted friends or relatives. Because people who need debt counseling are vulnerable, there are a lot of scams and fraud in credit counseling, so you need to make sure that you've found a company you can trust.

Remember that nonprofit status is not necessarily a good indicator. There are many companies that take advantage of the tax free status and the benevolent reputation associated with nonprofits. While the IRS is monitoring these more carefully than in the past, it's still not a guarantee of fairness or honesty. Check any agency's reputation with the Better Business Bureau.

Watch out for firms that make unrealistic promises. They cannot:

• Clean your credit report, unless there are mistakes on the report. Only time and rebuilding your credit history through paying debts on time can do that.
• Guarantee that they can reduce your payments. They may be able to negotiate with your creditors to reduce penalties and interest, but the decision is up to the creditors.
• Reduce the principal that you owe on any debt. Creditors may forgive some of the interest and penalties, but they typically do not reduce principal.

Your payments should go directly to your creditors and should not include “donations” or other hidden payments to the counseling company. These fees are primarily paid by creditors.

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