With interest rates still at all-time highs (24.61% as of Feb. 15), paying off credit card debt may be more challenging than ever. If you’re struggling, credit counseling may be able to help. Counselors can provide guidance on debt management, budgeting, and ultimately help you pay your debt off faster while avoiding bankruptcy.
While you need to decide if credit counseling is right for you, here’s five signs that may indicate you could benefit from a credit agency’s assistance.
1. You Can Only Afford to Make Minimum Payments
Although making the minimum payment on your credit card balance is necessary to keep your credit score from taking a dive, it’s not that effective toward paying your debt off—especially with sky-high interest rates. To make any sort of dent you’ll need to budget more money toward debt repayment.
2. You’re Consistently Making Late or Missed Payments
Many people miss a payment by a day or two here and again, but once you’re 30 days past due, your credit score could take a dive by up to 100 points. And missing payments completely means you’ll probably end up hearing from debt collectors sooner than later.
3. You’re Unable to Put Money Toward Savings
If your savings account is stagnant or non-existent because you’re putting all your dollars toward household expenses and credit card debt each month, then your credit score could already be in trouble. Part of your credit score is measured by your credit utilization ratio, which is the amount of money you have available versus what you owe—and it shouldn’t be more than 30% of your available credit. Plus, with little to no savings and high credit card debt, you won’t have a financial safety net during an emergency.
4. Making a Workable Budget Seems Overwhelming
If you’re looking to make a budget, the good news is you’re on the right track. This is often the first step toward getting your finances in order. But it might seem daunting, especially if you owe a lot in debt. Through credit counseling, however, a credit counselor can help you create a budget that works for you, provide guidance on managing your debt, and help you plan for the future.
5. You Want One Monthly Payment
Another way credit counseling can help is through a debt management program (DMP). If you decide to enroll in the program, your counselor will work with your credit card companies to reduce your interest rate (often down to 6%–10%) and get your loans consolidated into one affordable monthly payment, all to be paid off in three to five years. While it typically costs around $40 a month to cover the cost of your program, you’ll ultimately save money in the long run and pay off your debt quicker, so you can emerge financially healthier.
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