Get Debt Free with Credit Counseling Now

Here is how you can get debt free with credit counseling. First, let's start with what credit counseling really is and how it can work to help you get out of debt.

We will also look at some of the situations which realistically beyond the scope of credit counseling and what your alternatives are if you find yourself in such a scenario.

What Credit Counseling Can Do

Credit counseling is an opportunity to sit down and speak with a debt expert about your financial problems or issues. Together you can assess how much money you owe altogether and compare this with where you stand in terms of assets and income.

From there, the credit counselor will recommend a course of action that is best for your specific situation. This may come in the form of a debt management plan.

Debt Management Plans

Debt management plans involve the restructuring and renegotiating of your outstanding debts by the credit counselor. All this is done in an effort to make it easier for you to pay off your debt obligations. This is different from debt consolidation, which we will discuss below. Credit counselors are often able to negotiate lower interest rates and on occasion modifications to the terms of your loans.

This gives you two options—you can either maintain the same monthly payments and pay off bills sooner or you can reduce the portion of your income that goes towards paying bills each month and pay the debts off over a longer period of time.

With a debt management plan, you will start making a single monthly payment to the credit counseling company, from which they will pay your bills. This approach assumes that you can keep up these monthly payments and if your credit counseling company manages to negotiate down interest rates and get better loan terms for you—this should be a real possibility. However, you may already be in too much debt to recover through a debt management plan, in which case you will need to think about the alternatives.

Alternatives: Debt Consolidation and Bankruptcy

Debt consolidation is often confused with a debt management plan. In debt consolidation, you combine all your debts into a single debt which you pay down each month. Often this consolidated debt will be secured against your home. With debt management, you still have multiple debts but you make a single payment to a credit counseling company, who then pays each of your bills.

The most drastic option is bankruptcy. When you absolutely have no way to repay your debts, you may be able to get the majority of your consumer debts written off by filing for a Chapter 7 bankruptcy. There are drawbacks, obviously—bankruptcy can cause a huge drop in your credit score, as well as making it very difficult for you to get a loan or borrow money to start a business.

Being Debt Free

Be aware that adopting a debt management plan can actually have a negative effect on your credit score. While you can get debt free with credit counseling, it is your responsibility to make sure you stay on top of any future credit card payments in order to build a good credit history.

Once you get started down this road your credit score should begin to improve. Be wary of credit counselors who claim they can rescue your credit score. While credit counseling can help you avoid the negative effects of another option like bankruptcy, setting up a debt management plan in and of itself does not save your credit score. It is establishing a good credit history over time after you pay off your debts that will help your FICO score recover.