There are consumer credit counseling services available that are designed to help people who are under a substantial amount of debt and are unable to get out of it on their own.
But unfortunately, most of these programs make the situation worse for consumers, don’t do much to ease payments and help get rid of original debt itself.
How does it work?
Most of the consumer counseling programs work by assessing your financial situation. This is done by taking into account your monthly liabilities, expenses, and assets.
The counseling companies then work with the creditors in order to plan out a certain payment schedule or plan to pay down the debt. The credit counseling company will send you a bill each month that you must pay, after the plan has been formed. All your creditors will be paid by that amount, with the credit counseling company taking a piece of the payment as well.
Credit Counseling Charges
Most of these companies have a start-up fee and a monthly maintenance fee, which is typically around $10-15, but it can add up quickly, especially if you’re already in debt.
But the worse part is that there are many less authentic companies also working who use your first payment as the total cost of the start-up fee, which could amount to several hundred or more.
These companies can’t do much more than stop recurring fees and new late fees and penalties, by working with your creditors. In other words, it is most likely that you’ll still have to pay 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.
Non-Profit Credit Counseling Services
Although many of these companies may claim to be non-profit, but this only means that the creditors instead of the consumers are paying these companies. There aren’t any federal regulations as well, and only 17 states have local regulations, so the chances of scams and fraud will be great. And remember that no business can survive without making a profit. Thus such companies may claim to help you get out of debt but what they are really working on is that how much money they can get out of you.
Important Factors To Consider
If you do decide to get involved with a credit counseling company, then you should consider these important factors.
First of all, keep in mind that it will be evident on your credit report that you’re enrolled in a credit counseling company. This might come as an alarm to most other banks and lenders and they might resist offering you any new form of financing.
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. And if you’re looking for a mortgage, forget it.
Also make sure to watch out for unreliable credit counseling companies that make poor arrangements with your creditors. It is possible that you keep on paying your proper share to a credit counselor each month but still get new lates on their credit cards because the amount paid is below the minimum.
By giving them the responsibility to make special arrangements with your creditors, you are trusting the counseling company and if they aren’t honest, you could be in bad shape. And remember that once you sign up with one of these companies, you will be unable to do anything until you end the contract, so it is better to take extreme caution when selecting a company to work with.
Although consumer credit counseling is one option to consolidate debt, it is a huge risk. You should only seek them if you have absolutely no other option left and are at the bring of bankruptcy. Consider working with your banks directly to create a payment plan if you are in trouble, or credit card balance transfer to move the debt to a low interest credit card or a 0% APR credit card.