Does Credit Counseling Work?

You may have heard the term “credit counseling” at some point, but you may not know exactly what it is. Credit counseling is service for those with credit card debt that helps people to learn how to manage their money in a responsible manner and to help them become debt free. When a person enrolls in a credit counseling service they are required to meet with or speak to a credit counselor. The credit counselor will then ask you to provide a list of all of your credit cards, account numbers and the total amount of money owed to each card company. From there, the credit counselor will then ask you to provide your total monthly income and a list of all of your monthly expenses that you must pay in order to survive.

Once a credit counselor has all of this information he then calculates your finances and shows you how to best pay off your credit card debt, where your money is actually going each month and how you can make better financial decisions in the future. Then, a credit counselor will offer you the chance to enroll in debt management plan that will have you paying one large payment to them each month that they will then disperse to your credit card companies. Typically, your debt must be paid off in full within 60 months. The credit counselor will negotiate with your credit card companies to get you lower interest rates, waive your late fees and even lower your monthly payments so that your total payment is less and more affordable.

Now, does this work? Yes. For the most part, those that enroll in a debt management plan with a debt counseling agency are able to pay off their debt in five or less years because the agency is able to help them financially. With lower payments and negotiated rates, your payments are less and therefore easier to pay. In addition, you are making one large lump sum payment each month to a debt company who is paying your credit card bills for you from those funds. Your payments are made on time and in full and your debt is gradually reduced. However, simply contacting a credit counseling service will not always work. Unless you enroll in their debt management plan, you will not likely be able to manage your debt on your own. The benefits of a debt management plan are what make reducing debt easier and more manageable.