How does consumer Credit Counseling work?

How does consumer credit counseling work? And more importantly, is there “a catch”? Consumer credit counseling can work great for someone who is just a little over extended in debt.  Consumer credit counseling agencies are the true non-profit agencies you hear about that work with your credit card companies to reduce your payments or interest rates so you can pay the debt off and be done with it.  However, this is limited to credit card debt.

How does it work?  The agency contacts the credit card companies, which will cooperate  to possibly reduce the interest rate.  The agency will then tell you the monthly payment that you must send in to pay the debt in full.  Your household budget and your ability to pay have nothing to do with the monthly payment amount.  You pay that monthly payment to the credit counseling agency and then the agency sends payments to each of your credit card creditors each month. The credit counseling agency will usually receive a fee for this service from the credit card company.

What is the catch?  Well, by the time you realize that you are in a financial bind, you are beyond the help a consumer credit counseling agency can offer.  The monthly payment you will make to the agency is not much different than the minimum payments you were making to pay the credit cards.  If your main issue stems from the lack of cash flow, which is extremely common, then consumer credit counseling doesn’t work.

What are the problems with credit counseling?  Credit counseling is reported on your credit report and it is a negative factor. Credit counseling works with credit cards but not every credit card company participates in credit counseling.  If you have debts other than credit cards, credit counseling doesn’t work.  The monthly payment is about the same as your minimum monthly payments.  You may still see late payments and fees accumulate on your accounts since the agency pays your creditors on its schedule, not necessarily by the due date.

There is nothing wrong with exploring your options.  Look your options over carefully and factor in how many months and years you will be sending payments to pay off the debts.  Call me if you have questions.  I want to give you the information you need to decide what suits you and your family the best.

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