The Disadvantages of Credit Counseling

Credit counseling services offer to get consumers and businesses out of debt. Many state they can cut debt significantly and keep creditors off your back using proven methods and approaches. While many credit counseling services provide a legitimate and valuable benefit to the public, there is the potential for deceit in convincing consumers they will become debt free. This is why the Federal Trade Commission (FTC) cautions that not all credit counseling companies are reputable.

Do It Yourself

Many practices performed by credit counseling companies can be done yourself. This includes preparing a monthly budget, finding ways to cut expenses and contacting creditors to work out payment plans or debt settlements. Many credit counseling companies want debtors to believe they need the services to be successful at negotiating with creditors. Some claim that without representation you cannot put pressure on creditors. But the truth is that if creditors see you are committed to paying the debt and you are honest and fair in doing so, most are flexible and agreeable to repayment options. Some credit counseling companies tell consumers to stop paying creditors altogether. This approach is dangerous, as creditors are likely to become upset and use debt collectors or even file suit against you.

Counseling is Costly

Credit counseling can be expensive. Some companies charge enrollment and maintenance fees. Others charge counseling fees or Debt Management Program (DMP) fees that are usually determined after an initial consultation. Such charges may be difficult to accept when you consider the services that can be done yourself.

Scams

The Federal Trade Commission (FTC) warns the public of scams that exist within the credit counseling industry. Companies may promise to cut debts in half only to leave you in the same financial position you were in to begin with. In some cases, a consumer may be in worse shape due to the counseling fees. According to the FTC, consumers should be wary of credit counseling companies that charge high upfront or monthly fees for enrolling in credit counseling or a Debt Management Program (DMP). They should also use caution selecting companies that offer to enroll them in a DMP without reviewing their financial situation. Any credit counseling service that does not provide educational assistance such as budgeting and money management should be avoided.