How A Credit Card Counselor Will Prepare A Budget To Eliminate Your Credit Card Debt

The goal of a credit card counselor is to help you eliminate your credit card debt as quickly as possible. To do this, they focus on two areas.

  1. Education - They will counsel you on money management and other important personal finance topics, as well as provide you with access to information on these and similar topics.
  2. Your Finances - After a thorough analysis of your personal finances, they will prepare a detailed budget that will include as part of it, a plan to eliminate your credit card debt over time.

Let's have a look at what type of budget a credit card counselor will prepare for you and how exactly that will help you accomplish your debt relief goals.

Preparing A Credit Card Debt Reduction Budget

The first step is up to you. You must provide the credit counselor with details of your finances, including, but not limited to pay stubs, mortgage information, car loan details, household expenses, credit card debt statements etc. And if you are not sure if something should be included, hand it over anyway. The debt counseling agency will decide what should and should not be included.

Once the counselor has all of this information they will go over it and prepare what they call a priority pay system. A priority pay system does just what it sounds like it does, it prioritizes the payments that you make every month.

Priority Payments Group #1

The first group of expenditures that your credit card counselor will have you take care of are your necessities, housing, food, medical and child care. The reason (which is probably obvious) that you take care of these expenditures first, is to create stability in your life and your family's life. You need some solid ground under you to start to dig your way out of debt.

Priority Payments Group #2

Next, your credit counselor will have you focus on paying your secured debts. Things like your car loan and co-signed loans would fall in this category.

Priority Payments Group #3

Next comes the credit card debt.

Now, for many folks who seek the help of a credit card counselor, they are either unable to meet their monthly credit card payments, or are barely paying the minimum payment amounts required. And unfortunately, even with a strict budget in place, it is just not possible to start paying down these debts. If this is the case, your credit counselor will likely recommend that you consider enrolling in a Debt Management Plan. This type of plan can be set up and overseen by the same credit counseling company.

Here's what happens.

Your debt counselor will contact all of the credit card companies that you owe money and try to do the following...

  1. Get your interest rates lowered significantly.
  2. Get any late fees and over-limit penalties waived, and if necessary...
  3. Negotiate a lower monthly payment schedule that will fit into your new budget.
You in turn agree to close your credit card accounts, and make a single payment to the credit card counseling agency each month to cover your debts. The counselor will then take that money and pay each of your creditors on time.

The goal is usually to have you out of debt within 60 months. If this sounds like something that might work for you, you can receive a free online financial analysis and cost savings estimate from a credit counselor in your neighborhood, or even online if that is more convenient.

Working with a credit card counselor is a great way to get a handle on your finances, and at the same time, start the ball rolling on actually getting out of debt, instead of falling further into it.