If you’re looking to improve your credit score and dig your way out of debt, you may be considering credit counseling as an option. Counselors can help assess your current financial situation and find reasonable ways to get you out of debt. But if you’re newly considering living a debt-free lifestyle, you may be wondering when is the right time to go for credit counseling. Here’s what you need to know.
What is credit counseling?
Companies that specialize in credit counseling help provide education on all things personal finance and debt management. Credit counselors focus on:
- Reviewing your holistic picture of financial health to understand where money is going
- Offering general money management advice
- Creating a budget
- Developing a debt repayment strategy
- Understanding your credit report and how to improve your score
- Negotiating with lenders to resolve outstanding debts by lowering interest and extending repayment terms
- Assisting with managing lender repayments
A credit counselor is there to support you if you’re feeling overwhelmed by debt. But don’t confuse them with debt settlement companies. Debt settlement companies are often for-profit companies that charge fees to settle debts and pay them off via a lump sum. But the debt management plan created by a credit counselor is meant to be a sustainable repayment strategy, not a lump sum settlement.
Credit counselors may work for non-profits, for-profit companies, or as independent consultants. And some may charge fees for services such as managing lender payments or negotiating lower interest rates. It’s best to check with the credit counseling company you plan to use to confirm any fees before setting a meeting.
When is the best time to use credit counseling?
Credit counseling can help to relieve some of the emotional burdens of debt. But there are obvious financial benefits, too. Getting assistance with a debt management plan may help to improve credit and decrease how much you owe in interest over time.
Credit counseling is best suited for those ready to get control of debt but who need a little help. The best times to consider credit counseling is if:
- You’re struggling to meet monthly debt payments: Credit counselors can sometimes help consolidate your debts to a single monthly payment. That payment goes to the credit counseling organization who divvies it out to each lender. This means your only concern is the single payment instead of having to manage paying down multiple debts.
- You have debt in collections: Debts in collections are no longer accruing interest and fees. Credit counseling services may be able to help by including the debt in your overall plan so you can pay it off quicker. In turn, it can alleviate much of the stress of having a debt in collections.
- You’re living paycheck-to-paycheck and can’t seem to break the cycle: One of the primary services of a great credit counselor is financial education. Through coaching on budgeting, saving, debt repayment, and more, credit counseling services can help you break out of paycheck-to-paycheck living once and for all.
The bottom line
If you’re ready to be done with debt, it might be a good time to book a meeting with a credit counselor. The first meeting, which is typically offered free of charge, can help you understand your options for debt management. While credit counselors can’t ever help to erase debt completely, they can get you on solid footing with a plan in place to attack debt head-on.
By Brooke Joly
Brooke is a freelancer who focuses on the financial wellness and technology sectors. She has a passion for all things wellness and spends her days cooking up healthy recipes, running, and snuggling up with a good book and her fur babies.