Credit Counseling

If you are not disciplined enough to create a workable budget and stick to it, cannot work out a repayment plan with your creditors, or cannot keep track of mounting bills, consider contacting a credit counseling organization. Many credit-counseling organizations are nonprofit and work with you to solve your financial problems.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

Regardless of your particular need, selecting the right credit counselor is vital. Unfortunately, some organizations, including some that label themselves “nonprofit credit counseling agencies,” can be underhanded and more concerned with helping their own bank accounts than helping yours. An April 2005 report by a U.S. Senate investigating committee reported, “Some new entrants to the industry, however, have developed a completely different business model – a ‘for-profit model’ designed so that their non-profit credit counseling agencies generate massive revenues for for-profit affiliates.

Consumers need to know and understand the differences when selecting a credit counselor. They must know the warning signs. The following information can serve as a valuable guide to help consumers “know the difference” when choosing a credit counseling agency.

1. Ask the BBB (Better Business Bureau) and other third parties about the agency. A number of independent or government organizations work to protect consumers by collecting complaints and making the information public. The BBB is one such agency.

2. Be skeptical of extravagant promises. Some organizations claim they can “fix” a bad credit report or credit score. Others say they can settle a consumer’s debts for relatively little money. If an agency sounds too good to be true, it probably is. Reliable credit counselors help people manage their money better and, if appropriate, can set up a realistic repayment plan that is acceptable to creditors.

3. Make sure counseling sessions are substantial. The length of a counseling session will vary from agency to agency, but consumers need to make sure the counselor takes enough time to understand your personal situation

4. How does the agency protect consumers’ money? Consumers need confidence that any funds they hand over to an agency for debt repayments are secure. Consumers need to ask for evidence that an agency is bonded or has insurance that protects their money from fraud or the agency’s own financial difficulties.

Debt Management Plans

If your financial problems stem from too much debt or your inability to repay your debts, a credit-counseling agency may recommend that you enroll in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone.

You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. Even if a DMP is appropriate for you, a reputable credit counseling organization still can help you create a budget and teach you money management skills.

In a DMP, you deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you.

A successful DMP requires you to make regular, timely payments, and could take 48 months or more to complete. Ask the credit counselor to estimate how long it will take you to complete the plan. You may have to agree not to apply for — or use — any additional credit while you are participating in the plan. As above, here are also things to look for when looking for a Debt Management Plan.

1. ALL payments sent to the agency should go to creditors and be disbursed in a timely manner. Some agencies may take the entire first month’s payment and call it a “fee” or “donation.” Consumers should ask whether this is the agency’s policy. It is also a good idea to ask whether the agency holds payments or disburses them shortly after receipt. The success of a DMP relies upon full and timely payment to creditors to reduce a client’s debt.

2. Does the agency provide a full range of services, or is it just trying to push a profitable Debt Management Plan? Consumers should seek out an agency that provides a full range of services and tailors plans to each consumer’s personal circumstances.

3. The full amount of Debt Management Plan repayments should go to creditors. Some agencies may take a portion of a consumer’s debt repayment and call it a fee or “donation;” others may even take the entire first month’s payment. Consumers should find out how much of each monthly payment is going to creditors and how much is going to the credit-counseling agency. The full amount of those payments should be paid to creditors to reduce the client’s debt.

4. Make sure the agency will work with all of your creditors. Before entering a DMP, consumers should make sure the agency would work with all of their creditors. Some agencies may refuse to work with creditors unless the creditor agrees to a certain level of financial support for the agency. No agency can require creditors to recognize a DMP program, but the agency should be willing to reach out to every creditor.

If debt has consumed you, and your life is getting more difficult by the day, then Debt management and credit counseling are probably two very important choices to consider. If you have severe debt, you may be eligible to enroll in a Debt Management Plan. It takes approximately 36-60 months to repay debts through a DMP. This is sometimes the best alternative to debt freedom.

Debt has the ability to ruin lives. If you’ve gotten yourself into debt, you must make an adequate plan in order to take the steps to get out of debt. Paying off your credit cards and other debt is only a part of the equation. The other big part is actually making a budget. Without a clear-cut budget for your money and expenses, you are setting yourself up for failure.

Budgets are key to eliminating debt

One of the big reasons why many people go into debt is that they do not have control over their finances. They will spend money without thinking and will not know what to do when the first big bill comes along. People with budgets are far less likely to go into debt than are those without budgets.

Budgeting is a skill that people often do not learn. Perhaps you’ve been putting it off for some time. That’s understandable, as many Americans seem unwilling to limit their spending in anyway. The American dream is to have as much as possible, and the thought of budgeting is a bit silly.

However, when you look at the big picture (including not just the present, but the future—retirement etc.) it becomes apparent that budgeting is absolutely necessary for survival. Even those who earn comfortable livings and seemingly don’t have to worry about finances can benefit from solid budgeting.

We will be covering the basics of creating a solid budget in this article.

Step 1: Examine Your Salary

Do you know exactly how much you make each month? Without this knowledge, creating a budget will be impossible. Look at your pay stubs for the past few months and see how much, on average, you are taking home (after taxes). This is what you have to work with when you create the budget. This amount must be accurate—otherwise, your whole budget will be off.

Step 2: Look at Your Monthly Expenses

What are you spending your money on each month? Make a list of everything you are spending money on each month (feel free to drag out your monthly bills and check book to see how much you are paying out for each expense). This will include debt (credit cards, mortgages, car payments etc.), insurance (home and auto), utilities (gas and electricity, plus water), taxes (property taxes), groceries, clothing, basically anything that you spend money on.

Step 3: Using the List, Group Together the Items

Using Microsoft Spreadsheet, create a table for your expenses. Group debt-related expenses together (so put your credit card bills, car bills and mortgage bills) in a subject of “debt”. Then group utilities together under a subject of “utilities”. Put insurance bills under a subject of “Insurance”, and then put groceries and other household related costs under a subject of “household expenses”. Finally, put all of these under one big subject of expenses.

Step 4: Write Down How Much You Are Paying in Each Category

For every single item on your list, make a note of how much you are paying. Once again, the information you give must be accurate, or else it could throw off the entire budget.

Step 5: Add Up All the Expenses

At the very bottom of your spreadsheet, make a new category that says “total expenses”. In it, write down the sum of everything on the list. This will show you exactly how much money may, or may not, be left over for “spending”.

Step 6: Subtract the Expenses from the Earnings

Hopefully when you subtract the expenses from the earnings, you get a positive number. ? If not, you’re obviously in too much debt and should seek some form of help for that (be it credit counseling or bankruptcy). Let’s assume, though, that you have money left over after the expenses. This money should be used in a logical way and should be well-planned.

Step 7: Decide What to Do With Excess Money

When you determine how much money is left over, you should then figure out what to do with the money. One of the best things you can do with it is to save. Ideally, you want to save about 10% of your salary. While this isn’t feasible for everyone, it should be for most. If your left over amount is about 10% of your salary, try very hard to save as much of it as possible. If your left over amount is greater than 10% of your salary, you can then feel free to save/invest 10% of it and then use whatever is left to maybe “treat” yourself or your family to something. This could be a vacation or maybe a College savings account for your kids.

Step 8: Write Down What You Are Doing With Excess Money

Create a new category titled “left over money”. Delegate the left over money within that category. You may wish to put down that you’ll be setting aside “X” amount of money each month in a checking or savings account. You may also wish to put down that you’ll be putting aside “X” amount of money each month for extra things like vacations, nights out etc.

Step 9: Make Sure All Amounts Agree

Add your total expenses to the totals of your “left over money” category. Make sure that the two amounts, combined, add up to your salary amount (earnings). If they do, your budget is in balance. If not, you must make necessary changes to your “left over money” category to make the budget in balance.

Tips for Making a Budget Work

Making a budget work isn’t always as easy as setting up the budget. In fact, it can be downright difficult for many people. Here are three easy tips to make your budget work for you.

1. Set aside funds for each category. So if your budget says to spend $200 a month on groceries, only put $200 aside for groceries. Do not overspend.
2. Write down everything you buy and everything that is an expense. Doing so helps to keep you accountable and helps to keep you on the right track as far as the budget is concerned.
3. Always strive to stick to the budget. If you cannot afford something and it is not in the budget, do not buy it. Even if you really want that big screen TV, if you cannot afford it, do not make the purchase as it will completely goof up your budget and your credit.

The bottom line is that if you stick to the budget, you’ll be in good financial shape.