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Credit Counseling: Worth It?

Despite what many companies might tell you, credit counseling is not debt consolidation. In fact, although it is a popular misconception played upon by hundreds of organizations in the United States, credit counseling has nothing to do with "consolidation" at all.

What credit counseling firms generally offer is what is known as a Consumer Credit Counseling Program. As part of this program, you meet with a counselor who analyzes your monthly budget. The counselor then contacts with your creditors and attempts to get them to lower interest rates temporarily. The result is that the counseling agency requires you to make a single monthly payment, which it disburses to creditors.

The theory at play with these programs is that your overall payment per month is lower because of the counselor's success at obtaining lower interest rates and more favorable terms with the credit card banks.

What many people do not realize is that this is the approach is most often recommended by banks themselves. There are reasons for this, of course, and they are outlined below.

Does Credit Counseling Work, Then?

Maybe yes, but more than we would like to say, no. In most cases, it depends on your debt situation. First, you have to understand that the counseling service, while in theory a non-profit organization, actually receives compensation from the bank you owe the money to.

Whose side are credit counselors really on, the side of the consumer - who is paying a small monthly administrative fee - or the bank, which "compensates" the counseling organization with over 7% of the restructured debt? Because of this conflict of interest, it is easy to see why a CCCS program often does not work for clients.

Keeping You In The Dark?

With CCCS programs, the most frequent complaint we've heard from ex-participants is that they have little or no insight into what the CCCS agency is doing on their behalf, and that they have virtually no control over the process.

In fact, the participant frequently sends in a single monthly payment with no idea of how much is going to which creditor! What's worse is that since most counselors are busy people who work based on high volume, it is often difficult to re-contact them.

Now, we would never say that all CCCS organizations do a poor or lackluster job. Like any business, there are good and bad services. However, what we can say is that they don't really SOLVE the problem of high debt at all.

In other words, if you walk into the office of a credit counselor owing $25,000, you'll still owe $25,000 when you walk out.

This is where Debt Negotiation can help.

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