credit counseling

Looking to get out of debt in the new year? For many people, heading into a new year offers the opportunity to start the year off better than the last. Resolving to work on cutting down your debt is a healthy path to follow.  

One way to get out of debt? Look into credit counseling. 

Credit cards, while convenient, can be dangerous to your credit standing and financial health. So, how do you know if you need credit counseling? Experts agree that if you’re $5,000 or more in credit card debt, it’s probably time to seek help. Other warning signs include creditors calling, cards getting declined, a negative impact on your relationships, or if you just feel overwhelmed and are unable to keep up on your payments.

To get you started, here are some strategies to help set you on the path to financial wellness:

Don’t spend more than you can afford.

This may seem obvious, but credit cards can sometimes feel like free money. They’re not. That’s why creating a budget of all your monthly expenses is an important part of not spending more than you currently have. Add up your mortgage, rent, auto payments, insurance, utilities, phone, internet, cable, groceries, childcare, and transportation, as well as restaurant, travel, memberships, and any other miscellaneous expenses. Once you know how much you spend each month, decide in what areas you can cut back, which may include recreation, entertainment, and dining experiences. Set this additional money aside so you can put it toward your credit card debt. 

Decide on a payment strategy and stick to it.

There are a couple of different methods financial experts advise for people who want to pay off credit card debt. The debt snowball works when you take any extra money left over after paying the minimum on your other debts and applying it to the smallest debt. Once that’s paid off, you can now apply the dollars you were paying on that one, to the next smallest debt. There’s also the debt avalanche method, which works by paying toward the loan with the highest interest rate first.

Change how you spend.

Working on any bad spending habits will help change how you approach money over time, and ultimately will help you lead a financially healthier life. Setting money aside for emergencies will also help curb any unnecessary spending on credit cards. Also, make sure to always make your payments on time. Not only will you end up paying more in interest rate with late payments, but you might also be penalized with a late fee and find your credit score drops. 

How can credit counseling help?

When you enroll in a credit counseling program, a credit counselor will work with your lenders to consolidate your loans into one affordable monthly payment, as well as work to lower your interest rates. Even better? Debt management plans are designed so you can pay off your debt in three to five years.

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