Prior to the recent economic downturn, a number of factors all converged to make accruing an unwieldy amount of credit card debt inordinately simple. Such factors included low interest rates on credit cards, the increased popularity of internet shopping, a flourishing real estate market and the provision of credit to consumers with a poor credit history. The average household now has around $8,000 in credit card debt. Furthermore, 43 percent of Americans spend more than they make. If you're awash in credit card debt, high interest rates and late-payment fees, seeking credit counseling may be one of your solutions.
Debt Reduction: Baby Steps
The Federal Trade Commission advocates that consumers with credit card debt first make a personal budget to see if a "do it yourself" approach is possible. Credit counseling is an effective way to address debt, but some debt reduction services, such as debt management plans, require consumers to pay a small setup fee as well as ongoing monthly fees. When every penny saved counts, determining what expenditures you can shave or eliminate from your monthly budget can help you gain a foothold in paying down credit card debt. Your definition of "unnecessary expense" may be very subjective; a subscription to cable television service may seem vital, while other self-budgeters may see it as a frivolous expenditure. However, the FTC indicates that your ultimate goal is to be able to pay for your most basic needs, such as your rent or mortgage, insurance, medical expenses and food.
Is It Time?
The FTC states that it might be time to seek credit card debt counseling if you find that you can't stick with your budget or keep up with credit card bills. But the National Foundation for Credit Counseling offers other signs that you may be in over your head with credit card debt. These can include your credit card balances continuing to rise each month. You make only minimum payments--because that's all you can afford. Next month's credit card bills arrive just as you send out last month's payments. You hide credit card bills from your spouse or other family members so they do not notice see your spending habits. Credit card companies start calling you, demanding payment.
If your credit card debt has become a real-life stressor, affecting the quality of your interpersonal relationships, credit counseling is one solution.
About Credit Counseling Organizations
Choosing the right credit counseling organization is a key ingredient to successful debt resolution. The FTC and NFCC advise seeking an organization that provides a broad array of services, including personal budgeting, money management classes, debt reduction plans, and pre- and post-bankruptcy counseling. The NFCC indicates that although small initial fees may apply, a reputable nonprofit agency will waive these in cases of hardship. The FTC and NFCC urge you to eschew the credit counseling agency that offers only a debt management plan as the only solution prior to getting to know you. The FTC notes that this debt reduction plan should be recommended only after the counselor has thoroughly investigated your financial situation and presented all of the options.
What Credit Counselors Won't Do
Consumer Credit Counseling Service, a member agency of the NFCC, notes that credit counselors do not offer credit repair or debt settlement services. If you agree to enroll in a debt management plan, your credit counselor will not let you use credit cards, apply for new ones or take out loans. The NFCC indicates that exceptions may apply in cases of an emergency or if your place of employment requires you to use a credit card for company expenses.
What to Avoid
Credit consolidation and credit negotiation can seem like a better option to credit counseling. However, the companies that provide these services may be scams or may ultimately end up charging you outrageous fees. Records of debt settlement can affect your credit history, warns the FTC. If you pursue credit consolidation or credit settlement services, make sure to research the company through your state's attorney general's office and the Better Business Bureau.
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