Consumer Credit Counseling

Consumer Credit Counseling or Credit Counseling is a process designed to educate and set up a debt management plan for a consumer. People attracted to consumer credit counseling are usually interested in making only one payment for all of their unsecured debt and lowering interest rates. The job of any legitimate Credit Counseling Company is to work out a realistic debt management plan between the creditors and consumer. Once enrolled the client makes one payment to the company, which is divided and dispersed to the various creditors. To receive noticeable debt relief in consumer credit counseling it is imperative that interest, monthly payments or both are reduced; otherwise the program resembles little more than a repayment program with one monthly payment. Without an interest reduction the consumer can actually pay more than they would directly to their creditors because of service fees, which can be considered excessive at some companies.

History of Consumer Credit Counseling

When the first consumer credit counseling agencies were created in the 1950’s, their stated objective was to promote financial literacy and help consumers avoid bankruptcy. Interestingly enough, these pioneer agencies were created by the credit grantors themselves. Over time the consumer credit counseling model has changed from non-profit education centers to seemingly for-profit sales call centers. I use the term “seemingly for-profit” because recently many credit counseling firms have been investigated by the IRS and had their non-profit tax exempt status denied. There has been a huge increase in the number of these companies in the last twenty years and many have come under criticism because of the fees they are paid from the creditors themselves. The lobby against consumer credit counseling comes mainly from collection agencies that believe they are put at an unfair disadvantage because they are not tax exempt.

Although the consumer credit counseling industry has recently been under fire, there are of course some reputable companies that do try to put the consumer’s financial health first and profit second. Generally speaking if you are able to pay your minimums but can’t seem to get out of debt because of high interest rates, consumer credit counseling might be a good idea. Do everything you can to make sure that the company is legitimate and a beacon of superb customer service. A common complaint is from consumers who have made their monthly payment to the credit counseling firm, only to find out the company held on to the money too long and paid the debts late. Obviously this would negate any benefits from the program because of increased interest rates and late fees. It is also important to note that although consumer credit counseling will not directly affect your credit score, it will be notated on your credit report. This notation can have negative consequences with lenders who use multiple risk factors to determine credit worthiness. If you need a drastic reduction in monthly payment or want to pay your debt off in half the time of consumer credit counseling, debt settlement might be a better option.

Debt Management | Consumer Credit Counseling | Consumer Credit Counseling

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