Credit Counseling, Is It For You?

As with anything else in life, it’s nice to have someone guide us through the rough spots. That’s what credit counseling is.

If you’re reading this, it’s likely you already believe you may need some solid credit counseling for debt help. Keep in mind that asking for help is a very positive thing. It means you’re ready to affect a change for the better.

Credit Counselors: How They Can Help

Unsecured Credit

Credit counselors will work with both you and your lenders for an equitable resolution. This refers to unsecured credit only, such as credit card debt.

Secured Credit

Mortgage and car payments are secured, which requires you to work with those lenders directly. Credit counselors cannot resolve issues that involve secured credit.

Credit Counseling and Credit Reports

There’s no need to put off credit counseling for fear of how it may appear in future reports. Quite the contrary, you should feel free to seek the help you need. This can help avoid a bankruptcy.

Alternatives to Credit Counseling

Home Equity

Credit counseling can be a long process, but a home equity loan can help you avoid this altogether, quickly reducing your debt burden. Apply for one to consolidate high-interest debts, bills, and credit cards. High-interest debt can be one of the main culprits in financial difficulty — something that’s too often ignored by many.

Imagine the following scenario:

  • You’re carrying a balance over $5,000
  • You only make the minimum payments
  • Everything is fine since “your bills are paid”

True. But you’re likely paying as much as $1,000 a year in interest alone — not to mention the cash being drained from other debts you may have.

How will a home equity loan help? You can immediately lower this amount by $600 annually. This allows you to either pay off your debt much faster, or free up cash for other needs.

Responsible Debt Management

The more time stuck in high-interest debt, the more money you’re wasting. A home equity loan can be the problem-solver you’ve been looking for. The important thing is to act. Like most things in life, the person to rely on most for improving your financial situation is you.

Even with credit counseling, you retain total control of how your debts are paid, as well as when. If you choose to do this, be aware that since there is no signed commitment required on your part, the agency must leave the repayment of your debt in your hands.

Follow their advice. Otherwise you may find yourself exactly where you started — overwhelmed with debt. Credit counseling, as with any other type of advice, only works if you follow it.

Your Credit Score: Why it’s Important

Checking your credit score is a quick and easy way to find out how you’re doing. In the industry, your credit score is generally referred to as your FICO (Fair, Isaac and Company) score. Lenders use this to assess your credit worthiness. Typically, the higher your score, the lower risk you present. Usually, lenders will reward such applicants with a lower lending rate.

Keeping track of your credit score is important. It can alert you if you need to manage your credit more carefully, or if there is any false information that can mistakenly lower your score.

Under the Fair Credit Reporting Act, accurate information can stay on credit reports for up to seven years. Today, you can view your credit score for free. It’s better to do this before you apply for a loan, giving you time to clear up any problems beforehand.

Please note: Checking your own credit report will not lower your credit score.

Repairing Your Credit Score

So once you know your credit score, what then? If it’s relatively high, you’ll have a better idea what type of rate you should receive (and deserve) at lenders. Plus, it also offers peace of mind. Everyone likes to know everything is proceeding smoothly, and this is one way to make sure.

But what can you do to repair your credit if the information in your credit report is less than perfect? Don’t worry. You have options. A credit counselor can act as a mediator between you and your lenders.

Credit Reports: Things To Watch Out For

Be wary of any credit counseling company that makes promises that sound too good to be true. A sign that should raise a red flag includes paying for credit repair services before any credit counseling services are provided. Another to watch out for is suggesting you erase your old identity and start anew.

In reality, no one can instantly (and legally) remove accurate, but damaging information from a credit report. There are only two ways to ensure this happens: Either work out a payment plan that you can meet, or allow enough time to go by (usually this is seven years, but it can go up to ten years for reporting a bankruptcy).

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