Individuals facing financial difficulties experience very different situations. For example, your credit card debt may reach a level at which consolidating credit card debt is your best option. So, when should someone seek credit counseling? First and foremost it is important that we understand what credit counseling really is.
What is Credit Counseling?
This is when a certified credit counselor from a reputable credit counseling agency, such as ACCC, will help you determine the best way to approach your financial situation. They will also provide you the best debt advice options and debt solutions for managing your credit card debt.
Credit advisors will assist you in:
- Analyzing your current financial situation
- Providing personalized options based on your goals
- Recommending the optimal debt management plan to achieve financial stability.
The process helps people with financial instability regain control of their finances with clear recommended spending guidelines. So, do you need to seek credit counseling?
When to Seek Credit Counseling?
It is important to look for the warning signs in your finances to identify when to seek credit counseling services. Here are some signs that should not be ignored.
Warning Sign #1 – When debt is creating tension in the household
If your household’s conversations are stressful and revolve around money, you may be heading towards debt that you are unable to handle on your own. This can be a warning sign that your finances are getting out of hand and you need external help to get out of debt. An objective and knowledgeable third party can be just what you need to move forward.
Warning Sign #2 – Too many past due notifications
If you are receiving past due notifications from your lenders, you are in financial trouble and may need to reach out to someone who can help you. Past due notifications can mean higher interest rates, even more late fees, and other financial charges. These costs can only put you in more debt. At this point, it is a sign for you to re-evaluate your finances and reach out to a reputable credit counseling agency to help you come up with a plan.
Warning Sign #3 – Overly relying on credit
Ideally, a credit usage ratio of less than 30% is considered a healthy amount. But if you find yourself to be relying largely on credit to cover your regular expenses, this is a sign that you are living beyond your means. Maxing out your cards damages your credit score as it raises your credit utilization ratio. This is the ratio between your credit card balance and credit limit. Consider talking with a credit counselor if this is the only way you can pay your bills.
Warning Sign #4 – Reaching into retirement savings to cover expenses
Borrowing against your retirement savings is another sign that you should probably have a deeper look at your finances. Dipping into a retirement account should be a last resort, as you may incur penalties and fees for early withdrawal. Plus, you are robbing your future savings and retirement needs. Consider consolidating your debt with a reputable agency sooner than later to sort out the situation.
Warning Sign #5 – Relying on balance transfers
If you’re frequently transferring balances from one credit card company to another to get reduced interest rates, you’re probably not able to clear the balances in a timely manner. This may be a sign that it is time to seek advice or assistance with reducing your credit card debt.
Warning Sign #6 – Making only minimum payments for multiple consecutive months
Occasionally it makes sense to just pay the minimum on a credit card. However, if you’re only able to make minimum payments on your cards for many months there are repercussions. These may result in you not being able to get out of debt without paying significant interest charges and other fees. Often the minimum payment on a card will put you on pace to be paying the debt for a longer than average period of time. Talking to a credit counselor can help find a way to reduce spending and increase the amount you put towards debt each month.
Warning Sign #7 – Using cash advances or payday loans
If you’re not able to pay for monthly expenses without relying on risky payday loans, then you need help managing your finances. Sometimes emergency expenses catch us off guard. But that’s still not an excuse to become a victim of predatory loan products. If these types of loans are your only option, then you’ve overused your credit. Talking to a credit counselor can help find solutions that can prevent reliance on such loans.
Finally, it is crucial that you understand when and with whom to seek credit counseling services. Identifying signs you may need credit counseling early can help you in the debt elimination process. In addition, knowing these signs paves the way for better financial health in the future.
How to Choose an Agency When Seeking Credit Counseling
There are a few key aspects that you should look for when choosing an agency. The following video explains these factors.
If you’re struggling with debt, ACCC can help. Schedule a free credit counseling session with us today.