Overwhelmed by Your Debts? Get Some Answers

By Caitlin in Posts
Overwhelmed by Your Debts? Get Some Answers

What do you do when you feel overwhelmed by your bills? If you’re like most people, you start by going through your debts trying to figure out if there is a way to cut back on expenses or payments. Then you consider a loan, or taking on an additional job to help make ends meet. You may even start avoiding your bills and not opening them because you are so overwhelmed. But did you know, you may be able to get help with your debts by talking to a credit counseling agency?

Why Credit Counseling

The term credit counseling encompasses a lot of services. These include assistance with budgeting, debt management plans, pre-bankruptcy counseling or post-bankruptcy education, and housing counseling services.

Most people contact a credit counseling agency looking for assistance with debt consolidation. One of the services credit counseling agencies provide is called a debt management plan. Rather than consolidate your debt, debt management plans consolidate your debt payments.

Debt Management Plans and Credit

People often ask me how credit counseling and debt management plans impact your credit. When you are on a debt management plan, your creditors may add a remark to your credit report that states you are in “credit counseling,” (or a similar notation). According to MyFico.com, participating in a credit counseling program of any kind does not impact your credit.

A good credit counseling agency will want you to close or inactivate your credit accounts, so that you do not continue to incur debt. This closing of accounts may cause a temporary reduction in your credit score. However, making consistent, on-time payments has the most impact on your credit score, so over time, your score may improve.

The closing of accounts also helps people obtain the maximum benefits from their creditors. Creditors want to see that someone is truly serious about getting out of debt before they will provide benefits such as reducing interest rates, stopping late fees and adjusting the status of an account so that it reflects as current on a credit report.

The best course of action for your credit is to pay your bills on time in the manner the creditor requests. However, there are many things to consider when evaluating whether a debt management plan is right for you, and your credit is just one of them.

Are you able to pay your creditors the amounts they are asking for right now? Are you behind on any of your bills? Is a high interest rate causing your debt to grow rather than shrink? If you answered yes to any of the questions above, a debt management plan may help you to get your finances back on track before it is too late.

What if I don’t need a debt management plan?

Remember, credit counseling agencies offer a number of services to help consumers with their credit. Their goal is to help you determine the best way to manage your finances. Another option for getting your bills in order may be what I like to call a, “personal repayment plan.” In a personal repayment plan, you review your budget and determine how much money you can send (total) to your creditors each month. Then you choose one creditor to receive a larger payment while all the rest receive the minimum payment. People usually send the biggest payment to either the creditor with the smallest balance or the creditor with the highest interest rate. I recommend you choose whichever method will give you the most motivation to continue paying off the debts.

On a personal repayment plan, as you pay off one creditor, you keep the amount of money you are sending the same. You allocate the money from the paid off creditor to another creditor on your list. This method helps you get out of debt in a timely and more efficient manner.

There are many ways to tackle repaying debt and managing your finances. From debt consolidation, debt management plans, personal repayment plans, and even more options, a credit counselor can help you make the right choice. Contact one today to find your answers.


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