Tuesday, June 28, 2011

Guest Post : What exactly is credit counseling?

We’ve all borrowed money at some point in our lives, and later realized that we should not have done that. Whether it was financing a car that was way above our means, or a hasty purchase with a credit card we have all gotten in a little trouble with our spending habits. Some consumers have taken spending to a new level and find themselves deep in credit card debt. For those of us whose credit card debt has become unmanageable speaking to a credit counselor might be a viable option.

Credit counselors are basically extremely skilled and proficient with negotiating with creditors and know how to help an individual in debt get better terms with their credit card company. The first step in the credit counseling process is an in-depth expense analysis where a credit counselor will analyze where your funds are actually going, because if you don’t know how you’re spending your money then you will never know where your funds are going. After the credit counselor has done an in-depth expense analysis, than a credit counselor will take a look at your debt. If it looks like you’re in deep trouble, a credit counselor will suggest that you get into a debt management plan (DMP), which is basically used as an instrument to negotiate with your creditors lower interest rates for your credit cards. A DMP is also used as a way to declare your commitment to your creditors that you want to get your credit cards paid off.

There’s a lot of misconceptions about credit counseling and how it affects your credit, but according to FICO credit counseling has no affect on your credit scores, although while you’re in a DMP it may hinder you from getting approved for future credit because it will show on your credit report that you are currently in credit counseling.

For the most part, credit counseling is a great alternative to bankruptcy, and if you’re filing for bankruptcy you are required to enter credit counseling 120 days prior to filing, so you’re going to be speaking with a credit counselor regardless. If you are considering bankruptcy you should look into speaking to a credit counselor, or if you feel that your credit card debt is just becoming unmanageable.

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