Consumer Credit Counseling Services
Consumer credit counseling services are designed to help people in large, often unmanageable debt get back on their feet. Unfortunately, many of these programs often land consumers in more hot water, and often do little to ease payments and the original debt itself.
Most consumer counseling programs assess your financial situation, taking into account your monthly liabilities, expenses, and assets. They then work with the creditors to settle on a certain payment schedule or plan to pay down the debt. Once an agreement is in order, the credit counseling company will send you a bill each month that you must pay. That amount will then be dispersed between your creditors, with the credit counseling company taking a piece of the payment as well.
Credit counseling companies also charge a start-up fee and a monthly maintenance fee, which though typically around $10-15, can add up rather quickly, especially assuming you’re already in debt. On top of that, many less kosher credit counseling companies use your first payment as the total cost of the start-up fee, which could amount to several hundred or more.
While these companies can work with your creditors to stop recurring fees and new late fees and penalties, they likely won’t do much more than that. In other words, you’ll still end up paying any old late fees, interest charges, and a good chunk of the original balances on your charge accounts, as well as whatever fees the credit counseling decides to charge.
Many of these companies claim to be non-profit, but that simply means that the creditors are paying these companies, not so much the consumers. They also aren’t federally regulated, and only 17 states have local regulations, so scams and fraud can and will be rampant. And bear in mind that though they these companies claim to counsel you and help you get out of debt, their lifeblood lies in how much money they can get out of you.
There are a few other important factors to note if you do decide to get involved with a credit counseling company. For one, the fact that you’re enrolled in a credit counseling company will be evident on your credit report, and most other banks and lenders view this as a huge red flag, often to the point where they won’t offer you any new form of financing. If you’re looking for a mortgage, forget it. And you may not be able to obtain any new financing, whether it’s a credit card, store card, auto loan, etc until you complete your credit counseling contract.
Also watch out for shady credit counseling companies that make poor arrangements with your creditors. There have been rumors of consumers paying their proper share to a credit counselor each month but still getting new lates on their credit cards because the amount paid is below the minimum. Remember, you are putting your trust in these companies to make special arrangements with your creditors, and if they aren’t honest, you could be in bad shape. Keep in mind that once you get involved with one of these companies, your hands can be tied until you end the contract, so take extreme caution when selecting a company to work with.
While consumer credit counseling is one option to consolidate debt, it is an option marred with risk, and not much reward. You really need to be at bankruptcy’s doorstep if you plan to enroll in one of these programs. If you’re in trouble, consider working with your banks directly to create a payment plan, or use credit card balance transfers to move the debt to low APR credit cards or consolidate debt on one single card at a low fixed rate.
You’d be surprised at how many options are available to you if you take the time to look around and ask questions. Remember, banks and lenders want your business and will usually work with you if you just ask.