Credit counseling that includes debt consolidation is a viable way to pay off debt, but it isn't for everyone. Signing on for what is generally a five-and-a-half-year commitment to eliminate your debt may not fit with your financial personality or plans.
Before committing to a credit counseling agency, ask yourself the following questions:
1. Do you respond well to rules and regulations?
Paying off debt through a credit counseling agency means agreeing to make an on-time monthly payment for a specified, fixed amount to the credit counseling company so they can distribute money to your creditors. You may also be required to take financial education classes.
2. Are you willing to cut expenses?
Being able to come up with the required amount to pay the credit counseling company will likely result in living on a strict budget. This means cutting expenses for the foreseeable future and leaves you little margin for financial error, such as splurging.
3. Is most of your debt eligible for consolidation?
Not all types of debt can be paid through a debt consolidation plan. Credit cards are the most likely form of revolving debt that can be paid through such a program. But before making a commitment, ensure that most or all of your debts can be included. Any debts that aren't a part of the program you will have to pay off yourself.
4. Are you prepared to follow up on your credit situation?
It's important that you keep abreast of your financial situation and make sure that the debt consolidation program is working as planned. The Federal Trade Commission (FTC) suggests contacting your creditors after you've agreed on a program with your credit counseling agency to make sure that the creditors are okay with the plan. It is also necessary to check your monthly statements to ensure that your creditors are being paid as agreed.
When the conditions are right for your financial situation, a debt consolidation program through credit counseling is an excellent way to consolidate and pay off debt.
About the Author:
Julie Bawden-Davis is a Southern-California-based writer specializing in personal finance and insurance. Since 1983, her work has appeared in a wide variety of publications, including Family Circle, Ladies' Home Journal, Parenting, Entrepreneur and The Los Angeles Times.