Do Credit Counseling Services Really Help?

In order to answer this question effectively, one would have had to actually participate in a credit counseling service. Fortunately for you, I have participated in such a service. There was a time in my life (mostly during college) when I would irresponsibly use my credit cards. I was deeply in debt and was having trouble making monthly payments. I decided that I needed to solve the problem by hiring the services of a credit counseling company.

Basically, these companies contact your creditors and get your interest rate and monthly payment lowered. Your credit accounts are closed (therefore, you can no longer use them and your credit score is negatively impacted, although not by much) and all of your debt is pseudo consolidated. These companies claim that your debt is consolidated into one, low monthly payment. Although it is true that you do only make one monthly payment, your debt is not consolidated. Each one of your credit card companies is still owed its respective debt amount. You only make one payment because you pay your credit counseling service, which in turn pays each one of your individual credit card companies its individual share. Additionally, the credit counseling company takes a fee for this service.

For the most part, these companies help you get organized and do help you pay down your debt. In my experience, they do not completely cover all of the ramifications of participating in such a service, however, if you do your homework and ask all the questions you may have, you will discover the whole story. If you do not like the answer you are given, ask the question again or ask for clarification.

The only problem I had with my credit counseling company is that they sometimes were not timely with my payments to my creditors. You have to make sure that your payments are being made to the appropriate creditors for the appropriate amounts. Additionally, you have to make sure that the credit card companies are recording the payments and are not adjusting your interest rate. It can be a tedious process, but if you put in the effort and weigh the benefits against the disadvantages, you should conclude that a credit counseling service is one viable solution if you are struggling with credit card debt.

The Credit Card Trap

I advocate owning and using credit cards. I believe that if a person uses credit responsibly, they can greatly benefit from such use by way of a high credit score and a strong credit report. However, there are two common, credit card blunders that many people make. If you avoid these two common blunders, you can avoid the credit card trap of creating more debt than you can handle.

The first most common mistake that many people make is that they only pay the minimum payment due. Paying only the minimum payment is the worst thing you can do, monetarily. If you make consistent, on time, minimum payments, your credit score will positively reflect such. However, your bank account will negatively reflect the same also. If you only pay the minimum payment, you should just take your balance and double it because this is the true amount you will probably pay. By paying only the minimum payment, you are basically only paying the interest. For example, if you had an outstanding balance of $1,500 at 12% interest, and you paid only the minimum payment of $20 per month, it would take you over 11 years to pay off the debt. Additionally, you will have paid over $1,200 in interest in addition to the $1,500 balance. Therefore, a balance of $1,500 cost you $2,700 to pay off. That minimum payment is not looking so good anymore is it?

The second most common mistake people make is that they use a credit card to pay the bill of another credit card. This practice baffles me. If you use a credit card to pay the bill of another credit card in order to obtain rewards points, and you pay off the second card in full each month, then paying a credit card with a credit card makes sense. However, this is not the situation to which I am referring. The mistake people make is when they pay a credit card with another credit card because they do not have the money to pay the bill of the first card. All a person is doing is making the situation worse. By using credit cards to pay off credit cards, a person is actually making the debt larger due to interest. Why do that to yourself?

Avoiding these two very common credit mistakes will help you practice responsible credit use and will also help you avoid the credit trap.

The Effects of Debt on Your Emotional Well Being

I have seen debt cause more stress than most things or problems that people encounter throughout their lives. Debt is an interesting beast. People become so consumed by debt that it is all they think about. Like being told you have a terminal disease and are about to die, people lose sleep, lose their appetite, and let their personal life (including a marriage, children, significant other, and/or friends) suffer because of the constant worry of making next months payments. People actually risk their health with this amount of built up stress.

The good news is, there are ways out of debt. The better news is, once you are out of debt, there are ways to control your debt so that you never have to experience those feelings of worry again (at least not because of debt).

Depending on your situation, cutting costs and balance transfers, consolidation, and bankruptcy all are options to consider. Obviously, some of these options will negatively affect your credit score, but that can be rebuilt. Choosing between your health and your credit score should not be a difficult decision. The point is, you have to take action to change your situation. Stressing out every month at the expense of your health and your personal life is the worst thing you can do. Change this circumstance by doing what is necessary to get out of debt.

Getting out of debt is the primary concern. When you start to notice the decrease in you debt, you will start to feel better. You will notice a relaxing feeling like everything is going to be okay. It is a great feeling, therefore, to maintain this feeling (as far as debt is concerned), you need to manage your debt.

The bottom line is, like always, use credit responsibly. All of these problems could have been avoided had you stepped back and assessed your situation during the debt accumulation process. Control your debt and you will be able to take your life back.

Saving Money While Paying Off Your Credit Card Debt

Credit card debt can be a real financial drain. You have all heard the statistics and seen the commercials. If you made only minimum payments, it could take you over 7 years to pay off a debt of only $2,000! This is insane! Why pay off the interest when you could be paying off the principal? There are some simple steps you could follow in order to save money on your credit card debt.

First, you must make more than the minimum payment. If you broke down the minimum payment, you would discover that almost half of it goes to paying interest. This is money that you are paying that is not reducing your outstanding balance. If you pay more than the monthly payment, more money goes to the pay off the principal and thus, it takes less time to pay off the debt.

Second, you can utilize a balance transfer. This option is only good if your interest rate is high. Sometimes, credit card companies will offer to give you a card with a 3, 6, 9, or even 12 month interest free or very low interest rate (usually around 2%) introductory period. After the introductory period, the interest rate resets to the default rate. If this default rate is lower than you current interest rate, you should transfer your balance to this new credit card. It is a very simple procedure, you will save tons of money because you will significantly pay down your debt during the introductory period, and your default interest rate on the new card will be better than the interest rate on the current card thus, saving you more money. Everybody wins!

Last, you can call your credit card company and ask for a lower interest rate. You have to have good credit to do this and usually have to have had an account with the credit card company for over six months. However, if you can take advantage of this, I suggest that you do. Many people do not know that you can negotiate with your credit card company and raise your credit limit and reduce you interest rate. If they seem reluctant at first, threaten to close your account. Make them believe that you can receive a better deal elsewhere. Better yet, have a better deal waiting and see if your current company can match it. If they claim they cannot, tell them that you will no longer do business with them and hang up. However, do not close the account because this would negatively affect your credit score. Instead, never use the card and see if your current company comes around.

Saving money on debt is possible; you just have to know where to look and what to do. Take advantage of these easy to use tips, and you will be debt free for less money in a faster time frame!