Relief & Credit Card Counseling

When it feels as if you're in financial free fall, a credit counselor may act as your parachute, preventing you from hitting rock bottom. To find relief, you must first address your true financial situation and create a new plan to map your route to financial freedom. By setting boundaries for yourself, you will have an easier time knowing when to stop spending.

Credit Score

Before going to a credit counselor, it's important to gain a basic understanding of your financial position. You are entitled to a free copy of your credit report from each of the major credit reporting agencies (TransUnion, Equifax and Experian) each year through the Annual Credit Reporting website. Go over your report to get a good look at your current debt, your existing balances and interest rates, and your score. Report any discrepancies in writing to the credit bureau and creditor to see a quick boost in your score.

Credit Counseling

Those who need help managing their debt and finances may find assistance through a reputable credit counselor. The National Foundation for Credit Counseling provides information on federally approved credit counseling organizations by location. A credit counselor will help you to understand your options for repaying your debt and get to the bottom of how to change your spending habits to avoid ending up in debt again.

Budgeting

To create an effective budget, keep track of everything you spend over the course of a week. Multiply that total by 4.3 to get an idea of your out-of-pocket expenses in a month. Add in any recurring monthly expenses, such as rent, utilities, and cell phone bills. Go over these expenses with your credit counselor and compare them with your income. The counselor may be able to objectively give you ideas about where and how to cut back.

Debt Management Plan

If you have defaulted on payments or you're having a difficult time making monthly payments, your credit counselor may recommend using a debt management plan (DMP). When you take on a DMP, your counselor gets in touch with your creditors to negotiate lower interest rates or payoff balances. Then, the counselor creates a time frame -- usually 48 months or more -- over which you will pay off your remaining debt. DMPs may make it difficult to obtain new credit in the future because you weren't able to pay off your full debt; however, the effect is far less damaging than missing payments or making late ones.