Struggling With Debt? Advantages Of Credit Counseling Before Bankruptcy

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Creating A Great Financial Plan

When it comes to taking care of your home and family, a huge priority should be taking care of your money. A few years back, we found ourselves really struggling to make ends meet, and I knew that I had to do something in order to make things work. I started cutting back a little at a time, and I was able to find some extra money in the budget to start saving. This blog is all about creating an excellent financial plan and making things work with what you have. I know that these tips helped me, and I am confident they can make a difference for your family.


Struggling With Debt? Advantages Of Credit Counseling Before Bankruptcy

23 September 2014
 Categories: Finance & Money, Articles

Dealing with financial insecurity, past due accounts and repeated creditor calls can cause significant emotional distress. If you've fallen behind and your current financial situation seems to be beyond what you can salvage on your own, you may want to consider credit counseling before you take the leap into filing for bankruptcy. Here are several things you can expect from working with a credit counselor.

You'll Know How Much Money You Actually Owe

One of the very first things that you will do when you meet with a credit counselor is review your credit report. The credit counselor will pull your credit report so that you can see the details of all of your outstanding accounts. Your credit report will tell you clearly what the full balance is on your credit card accounts, mortgage loans and any other open accounts.

Within minutes, you'll be able to put a full price on your current debt. Knowing exactly how much debt you're in will not only help you put things in perspective, but it will also help you understand how much work you have ahead of you.

You'll See Your Credit Score

Your credit score is a clear depiction of your current financial position. That score will define your credit worthiness in the eyes of lenders, which can make or break your ability to get financing for major purchases. When your credit counselor pulls your credit report, it will come with your credit score. This gives you an opportunity to understand exactly where you stand right now. Credit scores can be anywhere from 300 to 850, so you'll want to know where your score falls to determine how much work you have ahead.

You Can Put Your Monthly Expenses into Perspective

Before you can determine how much money you have free to start paying down your debts, you'll need to put your current monthly costs into perspective. Your credit counselor will help you create a thorough list of your monthly expenses so that you'll know where your money is going.

This inventory is important because it can help you identify areas where you may potentially be overspending. Often, it is difficult to really grasp where your money is going until you put it all on paper.

You'll Get Help to Calculate Your Debt to Income Ratio

Your debt to income ratio paints a clear picture of how your current expenses compare to your income. This is an important calculation to help you determine if you can afford the monthly payments that you'll need to make your monthly payments on the outstanding obligations.

To calculate your debt to income ratio, you add all of your monthly payments and then divide that total by your gross monthly earnings. The percentage that results is your debt to income ratio. The lower the percentage is, the better your financial standing.

You Can Set Financial Goals You'll Be Able to Reach

All of these things will contribute to helping your credit counselor understand your financial situation. Once you know how much you owe and how much you actually have coming in, you can set financial goals that will actually be attainable. After all, setting goals is a waste of time if they are out of your reach from the beginning. If you only have $50 left over each week after you address your bills and your recreational spending, it would be unrealistic to set a goal of putting $300 a month into savings. Likewise, you wouldn't want to set a goal of paying an extra $100 on each of several bills in a month. Instead, set goals you can afford. In this example, putting $25 a week into savings is a reasonable goal.

Although you may still find that your financial situation is beyond recovery without filing for bankruptcy, working with a credit counselor can help you to develop a thorough understanding of your budget. Whether you can set and reach your goals to get out of debt or you need to work with a bankruptcy attorney, the information you get from the credit counselor will play a vital role in the process.

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