As the name suggests, consumer credit counseling offers counseling to consumers in relation to how they use credit.
Definition of Credit
Credit may sound like only credit cards, but the truth is that many people use different types of credit throughout their lives. They might start with a credit card and student loans. Then they lease a car. They might get a mortgage on a home. Then they take out purchasing agreements for great TVs and furniture for their home. They love to shop at certain stores, so they take out a store credit card anywhere. Aside from it, they use it for all their purchases because they get “free” items and discounts.
Good Credit, Bad Credit
On the one hand, credit is good because using credit and then paying back the money shows that you are a financially responsible person. All of this activity is reflected in your credit score. A good credit score means you can often get credit (such as a mortgage) for a lower rate than someone with a lower credit score.
On the other hand, it is easy to lose track of one’s credit. There are so many offers floating around for 0% APR for the first X months. Moreover, it can be tempting to sign up for the card, make a big purchase, and then sort of forget about it until the bill is about to fall due.
Credit can also be a problem if you max out your cards because the more you borrow, the lower your credit score.
The Evils of Interest
The most obvious problem is that you will have to pay interest if you do not pay back the balance on the card within 30 days. High-interest payments mean a poor credit score. This is how credit cards and banks make such high profits. The interest you are paying is a loss to you, but a gain to them.
Look at any credit card bill, and you will see a projection for how long it will take you to pay off your debt if you only pay the minimum each month. In some cases, you might see a projection of ten or more years. Just think how much money you could save if you were to pay down that debt in a structured way and then stay out of debt. Consumer credit counseling can help.
What Is Credit Counselling?
Credit counseling is a service designed to educate consumers about paying off their debts and staying out of debt. Credit counseling will usually involve the person who needs counseling. It also includes gathering all their bills and credit card statements together to analyze their situation. Thus, with the help of a counselor, they will develop a structured plan to pay down the debt.
Counseling will also usually involve education about money management, such as budgeting and saving. That way, people can stay out of debt and even start to grow wealth.
Who Is Credit Counseling Intended For?
* Pay off debt
* Repair their credit score
* Learn how to manage their finances more effectively so they can remain free of debt
Statistics show that around 50% of Americans don’t have a working budget. Therefore, most adults at any income level can benefit from credit counseling.
Many non-profit companies offer free or cheap counseling services. And if you are thinking of filing for bankruptcy, credit counseling is mandatory before and after (if you are allowed to file).
Consumer credit counseling may sound complicated, but investing a few hours of your time in it could lead to huge savings and a great credit score.