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Credit Counseling

When debt feels unmanageable, credit counseling can help you regain control. Credit counseling comes in different stripes, though. Some are non-profit credit counselors while others charge fees that can worsen your financial situation. To help you decide whether credit counseling is right for you we’ve put together this guide to the ins and outs of credit counseling.

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Credit Help: What Is Credit Counseling?

Credit counseling is a meeting (or series of meetings) between a debtor and a counselor. That counselor is someone who specializes in helping folks manage and eliminate their debt. That’s not to say that you can’t talk to a regular therapist or counselor about your financial worries, of course, but credit counseling is for people who are looking for concrete help with debt elimination.

Your credit adviser will start by examining the lay of the land. He or she will look through your credit report and bills to figure out how much you owe by which dates and to which companies. You’ll work with your credit counselor to organize your debts and regain control over your finances. Your adviser can also help you work out strategies for dealing with creditors – things like applying for hardship repayment programs.

Credit Counseling

Remember that it takes seven years before negative credit events (like a missed payment or a bill that went to collections) cycle off your credit report and stop affecting your credit score. If there are errors on your credit report a counselor can help you get them removed, but any counselor who says he or she can get all your negative events removed from your report is probably bluffing.

A credit counselor is not someone who magically fixes your credit. A credit counselor is someone who empowers you by putting you on the path to solvency. Opting for non-profit credit counseling services is a good way to weed out credit advisers who might be looking to squeeze indebted clients for more money in fees.

Find out now: Which credit card is best for you?

Debt Management Plans

You should come away from your session or sessions with a credit counselor with a debt management plan in place. A debt management plan should include a budget that will help you allocate the money you need to eliminate your debt.

You should have a clear idea of how much money you’re going to be sending to which creditors each month. You should also have an end goal in sight that you can use to keep you motivated. A debt management plan will provide you with the all-important information of when you can expect to be debt-free if you stick to the plan.

As a condition of your debt management plan, you may be required to pay your credit counseling organization, which will then forward 100% of your payment to your creditors. Participating in this type of plan can qualify you for reductions in the interest you owe your credit card company. Sounds good, right?

Credit Counseling

The catch is that your credit counselor will suspend your lines of credit so that you can’t rack up new debt while you’re paying off the old debt. If you’re ready to take that step it can be a powerful tool to reduce what you owe and make your debts manageable.

Your debt repayment plan should be realistic and attainable. It shouldn’t depend on you picking up a side job that pays $60 an hour. Instead, it should be the optimal use of the resources you already have at your disposal.

If you commit to a debt repayment program that is too ambitious you’ll just get discouraged. Already too discouraged to see a credit counselor? Don’t be. You may think you’ve exhausted all the options available to you, but credit counselors specialize in keeping up on these things. They may have heard about income-based repayment plans you don’t know about or have strategies for negotiating bills you thought were set in stone.

Related Article: Don’t Make These 5 Credit Card Mistakes

Bottom Line

There’s no reason to tackle overwhelming debt on your own. Non-profit credit counseling is there to help you repair your credit and break your debt into manageable chunks. You’ll feel better once you have a debt management plan in place. Then, the trick is to stick to the plan. Good luck on your journey to debt-free living!

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Amelia Josephson Amelia Josephson is a staff writer covering financial literacy topics at SmartAsset. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.

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