Risks of Credit Counseling

Credit counseling is a service provided to consumers by hundreds of different companies. Credit counseling can help reduce or eliminate consumer credit card debt and provide the consumer with the skills and information needed to maintain a healthy credit profile and a debt-free life. Not all credit counseling services are created equally, however, and credit counseling involves an element of risk to a credit card consumer.

Negative Credit Impact

When you experience difficulty paying your debts on time every month, your credit score can be negatively impacted by late payments. As long as you continue to make your scheduled payments, however, your credit score will remain about the same. Enrolling in a credit counseling program can have a much greater impact on your credit score. If your credit counseling service encourages you to stop paying, your creditors may be forced to report your account to the credit reporting agencies, which can result in a significant drop in your credit rating. The use of credit counseling may also be reported on your credit and impede your ability to obtain new credit now and in the future.

Additional Fees

In many cases, you may solicit the assistance of a credit counseling service because the cost of interest charges and late fees have become more than you can handle. A credit counseling service can sometimes reduce the interest, late fees and penalties associated with your credit account, but there is also a risk of increased fees as a result of this service. Some credit counseling services instruct you to cease paying your creditors in an attempt to bargain with the creditor for payment reinstatement, but this can result in charges of additional fees for late payments, missed payments and account delinquency. In addition, most credit counseling services charge a fee for their service, which can range from a few hundred to several thousand dollars and contribute to your overall debt.

Restricted Credit

If you choose to engage the services of a credit counseling service, you may find that your credit privileges are restricted or even eliminated by your creditor. Some creditors view the use of a credit counseling service the same way they view a consumer's enrollment in chapter 13 bankruptcy. Once the creditor knows you are experiencing difficulty paying, they may take away your charging privileges before they agree to participate in a credit counseling plan. A creditor may restore your available credit once the payment plan has been completed, but you run the risk of losing access to credit should you need extra funds in an emergency situation.