Back to Basics: Credit Counseling 101

If you think being broke is just a poor man’s problem, get this: More Americans in higher income brackets are asking for assistance with their debt and reaching out to credit counseling agencies. An August survey by Consumer Credit Counseling Service (CCCS) of Greater Atlanta says the average client’s income is now close to $50,000 a year in this country – a dramatic 18% higher than the year-ago period. Experts say it’s partly to do with rising living costs, fewer jobs and a weak housing market. Life – in general – has gotten very expensive, very quickly. “A more affluent person who maybe hasn’t had credit card issues in the past is now finding themselves backed into a corner,” says Gerri Detweiler, credit advisor for credit.com.

Here are the ins and outs of credit counseling.

Fear Little. The biggest reason debt-ridden consumers don’t seek credit counseling is because they’re scared of damaging their credit, experts say. “They’re afraid of ruining their credit rating…but the good news is that FICO (the credit scoring agency) doesn’t count that in calculating your credit score,” says Detweiler.

That said, if you later go through a debt management program, which is sometimes the next level in a credit counseling scenario, the counselor may request that you freeze your credit card accounts – if your bank hasn’t already done so - to help in your pay-off strategy.

It’s true that the act of closing or freezing your accounts is a bit of a red flag to credit rating agencies, but let’s face it– you’re trying to get help, right? Freezing your accounts to become debt free will prove trivial in your overall credit history, especially if it’s done to help you achieve financial freedom. “If you’re drowning [in debt] right now, it’s not the most crucial factor,” says Gayle Cunningham, spokesperson for the National Foundation of Credit Counselors.