What Is a Consumer Credit Counseling Program?

A consumer credit counseling program educates consumers about managing their debt and helps them find ways to repay what they owe. If you're falling behind in your payments or having difficulty getting lower interest rates, a credit counseling program can help you design a budget that stops the damage to your credit. A counselor discusses and analyzes your financial situation, including your income, bills and open lines of credit, such as car loans, mortgages and credit cards.

Benefits

Along with educating consumers about methods to maintain good credit and manage debt, credit counseling programs may help debtors negotiate with their creditors. Creditors may agree to modify a loan agreement if it benefits them. Some people who feel backed into a corner may default on their debts by declaring bankruptcy, in which case creditors lose all the money they loaned. Creditors benefit from negotiating with consumer credit counseling programs because they can increase their chances of getting some or all of their money back. Consumers benefit because they may be able to meet debt obligations and begin to repair their credit.

Function

Credit counseling programs may work with your creditors to arrive at a reasonable compromise. By yourself, you might have difficulty convincing a creditor to lower your interest rates or minimum payments. Credit counseling programs may have working relationships with many creditors, making it possible for them to negotiate agreements that save you money on interest payments while decreasing the burden of your monthly payments.

Considerations

One important service credit counseling programs may offer is a debt management program. Debt management typically requires you to agree to send a specified amount of money to the program administrator every month, and the administrator disperses the funds to your creditors. Failure to pay in a timely fashion might jeopardize any concessions your creditors made, such as lowered interest rates and minimum payments. A comment stating that you are using debt management to pay a debt will appear on your credit report, but it does not hurt your credit score. Participating in a debt management plan could make it difficult for you to qualify for additional credit, however.

Education

Credit counseling programs also provide advice designed to help you avoid future credit problems. For example, a counselor can show you how to budget properly to pay off high-interest loans. Other topics include keeping interest rates low, repairing bad credit and understanding your credit score. Even if you don't need a credit counselor to negotiate with your creditors, the advice can help you improve your financial management skills.

Choosing a Program

When searching for a consumer credit counseling program, you should consider several factors. The program should be nonprofit and accredited and should provide information that explains the services offered and the cost of those services. You may want to speak to a counselor in person. You also should contact the Better Business Bureau, state attorney general's office and other local consumer protection agencies to determine whether the credit counseling program is in good standing.