What do you do when you feel overwhelmed by debts? If you are like most people, you will start searching among your debts, trying to find a way to cut expenses or payments. Then you will consider a loan, or get an additional job to help you make ends meet. You can even start avoiding your bills and not opening them because you are too overwhelmed. But did you know that you can get help with your debts by hiring a credit counseling agency?
Why a credit counseling?
The concept of credit counseling covers many services. These include help with budgets, administration of debt plans, pre-insolvency counseling or post-insolvency training, and housing counseling services.
Most people contact a credit counseling agency seeking help with debt consolidation. One of the services offered by credit counseling is called debt plan management. Instead of consolidating debt, debt management plans consolidate debt payments.
Debt management plans and credit score
People often ask me how credit counseling and debt management plans impact the credit score. When you are in a debt management plan, your creditors can add an observation to your credit report stating that you are in “credit counseling” (or a similar annotation). According to MyFico.com, participating in a credit counseling program of any kind does not impact your credit score.
A good advice will ask you to inactives or close your credit accounts, so you do not continue to incur debt. This closing of accounts can cause a temporary reduction in your credit score. However, consistently making payments on time has the most important impact on the credit score, so over time your score can improve.
Closing accounts also helps people obtain maximum benefit from their creditors. Creditors want to see that a person is really serious when trying to get out of debt before providing benefits such as reducing interest rates, stopping late charges and adjusting the status of an account to reflect it as liquid in the credit report.
The best process for your credit score is to pay the bills on time and in the manner that your creditors request. However, there are many things to consider when evaluating if a debt management plan is good for you, and your credit score is just one of them.
Are you able to pay your creditors the amounts they are asking at this time? Are you behind on any of your bills? Is a high interest rate the reason why your debt grows instead of decreasing? If you have answered yes to any of these questions, a debt management plan can help you get your finances back on track before it is too late.
What happens if I do not need a debt management plan?
Remember, credit counseling agencies offer A good number of services to help clients with their credit. Its objective is to help you determine the best way to manage your finances. Another possibility to tame your bills may be what I like to call a “personal return plan.” In a personal return plan you review your budget and determine how much money you can send (in total) to your creditors each month. Then you choose a creditor to receive a larger payment while the rest receive the minimum payment. People usually assign the largest payment either to the smallest balance or to that of the creditor with the highest interest rate. I recommend choosing any method that gives you the greatest motivation to continue paying the debts.
With a personal return plan, once you pay a creditor, you keep the amount of money you are constantly using. Allocate the money you used for the creditor already paid to another creditor on your list. This method helps you get out of debt in less time and more efficiently.
There are many ways to approach debt repayment and manage your finances. Through debt consolidation, debt management plans, personal return plans, and many more options, a credit counselor can help you make the best choice. Contact one today and find your answers.