One of the most common financial goals is debt reduction. Debt holds you back from your dreams. Buying a house, starting a family, opening up a business, getting ready for retirement – it all has to wait until you’ve climbed out of debt.
Making it happen on your own might not be possible. Getting out of debt takes financial knowledge that not everyone learns, such as how interest rates work, or the mechanisms available for getting out of debt. One service to consider is Credit Counselling.
Credit Counselling is a service offered by certified Credit Counsellors who assess your finances and point you toward a solution. Below are some of the common solutions that a Credit Counsellor from a non-profit credit counseling agency may suggest that will finally reduce your debt.
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1. Debt Consolidation Programs
Debt Consolidation Programs (DCPs) are offered by some Credit Counselling services as an alternative to a debt consolidation loan. In a DCP, a certified Credit Counsellor contacts your creditors to negotiate lower interest rates (or stop them altogether). Creditors can be persuaded to agree to these terms to avoid having the debtor file for bankruptcy, in which case they usually recover far less.
When you have consolidated credit as part of a Debt Consolidation Program, you make one monthly payment that’s distributed to your creditors. You won’t keep forgetting to pay bills or juggling due dates. It also means creditors stop making collection calls, which can be a huge relief.
2. Better Money Management
There is a lot that goes into better money management. Cutting spending is part of it, but that’s not the whole picture. There are other good money habits that will put in you a better financial position:
- Stop adding to high-interest debt with your credit cards. Pay off debts completely first.
- Increase your payments to as much as you can afford each month. Every dollar you carry over costs you more, all thanks to interest.
- Put windfalls such as tax refunds or extra income entirely toward debt payments.
- Pay off high-interest debts first.
A certified Credit Counsellor can work with you on budgeting and better money management.
3. Debt Consolidation Loans
A debt consolidation loan is similar to a DCP, only it involves taking out a new loan. That’s where it can become tricky, as you still have to qualify for the loan as you would any time you try to borrow money. You have to apply to a bank or other top-tier lender. They examine your credit history, score, and determine how much of a risk you are. Unfortunately, many people who apply for debt consolidation loans can’t qualify for them, because they are already too indebted.
You might qualify for a higher-interest loan, but then you have to compare it to the interest charges you’re already paying. The difference may become marginal, or you may even wind up paying more. Reducing or stopping interest charges is crucial if you want to get out of debt sooner.
A Credit Counsellor is there to help you realize your dream of getting out of debt. It may take time, but there are smarter ways toward financial freedom.
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