The Importance of Credit Counseling

By: Chris Potter

Credit counseling involves a one-on-one consultation with a credit expert; a person who understands and can explain the complexities involved in a person’s credit score.  While some people get credit counseling before applying for a credit card or a loan, many others do not.  While this is an individual decision that must be left to each person’s discretion, receiving credit counseling can guard against a number of financial distresses that thousands of people suffer from annually in the United States.

Many people think that they understand how credit works and go ahead and apply for credit without a consultation with a counselor.  However, this can put individuals at risk of making avoidable mistakes with their finances.  A lot of people misunderstand how credit works, how credit scores are calculated, and how they can change over time.  Some of the individuals most vulnerable to credit problems are younger people, especially college-aged students who apply for too many credit cards too quickly, accumulate thousands of dollars worth of debt, and have no way to repay it. Because many credit cards have extremely high interest rates attached to them, it is unfortunately easy for debt to spiral out of control.

 What Credit Counselors Do

Far too many people apply for loans and credit cards without having any kind of formal counseling.  In situations like these, many consumers end up damaging their credit scores, as they are unaware of the best strategies for managing and improving their finances.  Fortunately, a credit counselor can help individuals by:

  •  Offering advice on how to properly manage one’s money
  • Offering suggestions on how individuals can tackle current or potential credit issues to prevent future problems
  • Helping individuals create and maintain a personalized plan for handling their expenses and income
  • Helping individuals to responsibly and tactfully deal with their debt

Without a proper counselor to help one learn how to manage finances and expenditures, a person is far more likely to end up having financial problems in the future.  Some companies actually count on the fact that many people disregard credit counseling, thinking that they will spend more than they have and will have to pay much more in interest in the long run.

 Why Credit Counseling Matters

Receiving credit counseling can be beneficial in many different ways.  Establishing good credit as early as possible is more likely with the help of a credit counselor, who can guide you either towards an initial good credit score, or help you recover one after a period of financial difficulty. Not only can meeting with a credit counselor educate a person about how to manage their personal finances, but it can also prepare them for handling credit issues in all aspects of their life.

For example, credit is looked at by more than just credit card companies; loan companies, landlords, and even insurance companies also might look at a person’s credit score.  If your score is low or has been lowered because of financial problems or distresses, then you might not be afforded certain opportunities.

Credit counseling can ensure that you understand all aspects of credit; borrowing and repayment primarily.  Counselors can make sure that you comprehend what your own credit score is, how to monitor it, and how to improve it should that be necessary.  Without a credit counselor, financial management can be overwhelming and confusing, and many people just give up on understanding their situation and future opportunities.

 Donna Swanson is a professional legal blogger who is interested in informing individuals and business owners about the benefits of consulting with a bankruptcy lawyer and / or experienced credit counselor when experiencing financial distress.  She writes for several legal representatives, including attorneys who offer assistance with bankruptcy, debt negotiation, mortgage modification, and foreclosure defense.