What is Credit Counseling? Should You Consider it?

Credit counseling is one of the most misunderstood services because it is not what people think and it does not do for you what you have been told; many credit counselors are hurting the consumer.

For revealing and shocking articles from major new organizations about credit counseling give us a call. We’ll send you copies of these articles. They are educated and unbiased accounts of credit counseling agencies.

What is “credit counseling”? If you visit a so-called “Not-for-profit Consumer Credit Counseling” center, here is what you can expect:

  1. The credit counselor does not represent you. In reality they represent the interests of the credit card company which pays them. They do not represent you!
  2. They will review your monthly budget and figure out a way to squeeze as much money as possible from your disposable income to pay it to your creditors.
  3. You make a monthly payment to the credit counseling agency which pays the credit card companies; they, in turn, pay a fee back to the credit counseling agency. The credit counseling agency gets a fee from the credit card company. It’s a “kickback” pure and simple when you strip it down to its essence. There is big money in credit counseling. Don’t be fooled otherwise.
  4. You pay back the principal in full and most of the interest. Some of the interest may not be lowered at all.
  5. The so-called not for profit status is a complete misnomer. The IRS has set up rules which allow organizations to declare themselves “not for profit” by virtue of their non ownership status. This does not mean that people within the organization are not making a great deal of money. Again, don’t be fooled.
  6. Keep in mind you are in the plan for as long as it takes to pay back your creditors in full, which can take many years.
  7. It does negatively affect your credit. Often there are negative marks on your credit report indicating that your payment is late or not being paid as agreed. One of the biggest myths about credit counseling is that it does not affect your credit. It does!
  8. Credit counseling is very similar to a Chapter 13 bankruptcy except with the bankruptcy you pay no interest and you usually pay it back in only 3 years.

Think carefully about credit counseling. If you insist on credit counseling, we can refer you to credit counselors who at least have your well being in mind.

In theory your overall payment per month will be lowered if your credit counselor can get the creditors to lower the interest rate but keep in mind that credit counseling does not eliminate the interest or the principal. You end up paying the principal in full and a good portion of the interest.

Banks, credit card companies and the financial press love to tell everyone how great credit counseling agencies are but, either because of ignorance or greed, they forget to tell you some VERY important facts.

We are not suggesting that credit counseling is bad for all people. What we are strongly suggesting is that credit counseling does not attack the root of the bad debt problem because it’s not much different than if you continued to pay your minimum payments.