Is Consumer Credit Counseling Service Good or Bad?

Consumer credit counseling can be extremely helpful when you cannot handle your financial issues on your own, but it can make things worse if you do not select a good firm. Credit counseling is appropriate when you cannot create a workable budget or your debts are too high, but sometimes your situation is beyond the scope of a counselor's assistance.

Problem Types

Consumer credit counselors handle a wide range of problems, and legitimate firms offer services ranging from online materials, workshops and one-on-one budgeting assistance to in-depth financial analysis and repayment plans that include getting concessions from creditors. Counseling is not good if you do not have enough income to handle any kind of structured repayment schedule, even if your lenders waive fees and interest. You may need to file bankruptcy rather than wasting time pursuing other options.

Cost

Many nonprofit consumer credit counseling companies charge minimal fees or provide free help to debt-ridden clients, but not-for-profit status is not a quality or affordability guarantee. Ask about the firm's funding sources, cost of counseling, debt management plan fees and other services before you choose a counseling service. Avoid firms that do not disclose this information or you may worsen your problems by running up high fees for counseling sessions or payment plan administration. Free and affordable counseling is good because it does not put you deeper into debt.

Cooperation

Most creditors cooperate with consumer credit counseling companies when you agree to go on a debt management plan. Normally this means the lenders lower your interest rates, forgive late fees or agree to other helpful terms, and they often mark your account as "on time" with the credit bureaus if you keep up with the payments. This is a good aspect of counseling because it improves your credit rating. Some lenders may refuse to work with your counselor, and they might may even charge off your accounts, which damages your credit score.

Stability

You cannot predict a counseling firm's stability, and it is bad to use a consumer credit counseling company that goes out of business while you are in the middle of a debt management plan. Such plans run up to five years, and your creditors will not receive payments if you do not immediately find out that the counseling firm has shut down. Call the creditors as soon as you know there is a problem, and ask if you can continue the plan by sending the money yourself on the same schedule. Choose a licensed credit counseling firm that belongs to a legitimate professional organization like the National Foundation for Credit Counseling. Ask how long the company has been in business to get an idea of its potential long-term stability.