Is Debt Counseling For You?

This is a guest post from Jason Holmes is one of the financial writers associated with the Debt Consolidation Care Community.

How can debt counselors help?

Debt counselors are playing a vital role during the credit crunch. They are helping debtors to get out of debt and manage their finances better. If you are facing difficulty in managing your finances, be counseled on debt. It will not just give you a financial edge over others but it will also help you to attain financial liberty in the long run.

How can you be counseled on debt?

When you approach a debt counselor, your financial situation is assessed first. If you are in debt and asking for a debt relief option, your counseling will take a different form.

 

And if you are anticipating that you may fall into debt in the coming months, your counseling will take another form. It is always better to seek help of a professional counselor and still better if the debt counselor is approved by the government.

There are many debt counseling agencies that offer debt suggestions for free. Once they assess your financial situation, they suggest you to enroll for the debt relief option that will help you to pay off debts if you are already in debt or will suggest methods to avert falling into debt if you are anticipating financial trouble in near future.

What does a debt counselor do to make you debt free?

 

The debt counselor will take note of all your financial details. It includes your monthly income. Your monthly income can include your paycheck, if you are receiving rent from a premise that you have rented out etc. Your expenses are also taken into account. It includes the amount you pay each month for your mortgage, car loan, student loan, credit cards, insurance, your household expenses etc. Your debt-to income ratio is also calculated.

Depending on your financial situation, the debt counselor will suggest you to opt for any one of the debt relief options. It can be debt consolidation, debt settlement (also known as debt negotiation or debt arbitration) or debt management plan. If it is found that you are not eligible for any of the above mentioned program, the debt counselor may ask you to file bankruptcy.

 

New federal bankruptcy laws

It may be mentioned here that as per the new federal bankruptcy laws, credit counseling has been made mandatory prior to filing bankruptcy. And you are required to take a “pre- bankruptcy briefing” from debt counselors approved by the federal government. Filing bankruptcy should a be a last resort.

 

Do It Yourself Debt Settlement Steps

Settling your debts on your own can be possible, too. To do this, skillful negotiation with your creditors/collection agency is necessary. When you are facing trouble in making the minimum payments for your debts, then it is high time that you think about debt settlement. Debt settlement is a method through which you can negotiate with your creditors/collection agencies and reduce your amount of debt by 40%-60%. This article would give you some basic ideas about how you can perform debt settlement on your own in a step by step manner.

 

Step 1: Calculate your overall debt amount

 

Step 2: Evaluate the type and length of your debt accounts

Step 3: Get a copy of your most recent credit report from the credit reporting agencies and examine it carefully. Also have a look at sample credit reports offered by the three main credit bureaus.

 

Step 4: Go across your credit report and find out whether your debt account is still with the creditor or it has been shifted to a collection agency. 

 

If you carry out debt settlement yourself, then there are a number of advantages. You can save up to 60% of your dues on medical bills, credit cards and other types of unsecured loans. No settlement costs or upfront fees are required. Do it yourself debt settlement procedure is really simple and handy.

Note: I’ve included some do it yourself information on eliminating debt too.

How to get out of debt yourself (Green Panda’s Take)

If you’re looking to reduce your debts by yourself, there are things you need to consider.

1. YOU have to be committed to a plan and stick to it. Have your spouse, friends, family, etc. support you as you reduce your debt
2. Stop using credit cards. Hide them, freeze them, or perform a plasticomy. Use either a physical envelope budgeting method and take out money you need to eat, tolls, etc. If you run out of money, then make a peanut butter and jelly sandwich or bring leftovers for lunch.  If you want a more electronic method, keep track with your spending using a program like Mint.
3. Discover the exact amount of debt you’re in. You can’t come up with a plan until you know what you owe. List all your creditors, the interest rates, and the total amount you owe.
4. Work to see if you can lower your interest rates. If you can’t negotiate a lower interest rate, you may consider choosing a 0% card to transfer your balance. Please remember, balance transfers are a temporary fix and do not address the root problem.
5. Control your spending and write a simple budget. Track what you spend in 2 to 4 weeks. It’s hard to cut back if you don’t what your weak points are, so grab a little notepad and write everything you spend. Use free excel spreadsheets to help you organize your finances.
6. Automate your bills and put aside some money for savings. Protect yourself from yourself and automate your debt payments. Try to pay the minimum on all but one of your debts.  Put the rest of your debt reduction money into either your debt with the highest interest rate or the lowest balance. Highest interest rate method is the financially sound decision and lowest debt is the psychologically empowering decision.
7. Keep working on putting money towards digging out of debt. If you’re looking for money to reduce debt, try cutting unnecessary expenses or get a part time job exclusively for your debt repayment.

Photo Credit: terinea and  jenny downing