Credit Counseling

Many Consumer Credit Counseling Companies tout their non-profit status. Many consumers confuse "non-profit" with "no charge for services", or charity. Non-profit Consumer Credit Counseling Companies still make substantial amounts of money. The way Credit Counseling works is that you typically speak with a Credit Counselor who analyzes your unsecured debts, other obligations, and your monthly income. A credit counselor then formulates a monthly budget and presents a plan that includes lowering of some credit card interest rates and sometimes, the monthly payment typically around 11% interest. The Credit Counseling Company then contacts all your unsecured debt Creditors and requests that the consumer be permitted to repay the debt at a lower interest rate. During the program a single monthly payment is sent to the Credit Counseling company and they in turn make payments directly to all your creditors for the next 48 - 72 months.

Consumer Credit Counselors charges what seems like a relatively small fee but over time it adds up to costing you more than a debt settlement program.. What you are not told is that the Credit Counseling companies work for the Credit Card Companies. They make most of their money from "donations" from your Creditors based on the amount they "collect" from you while in the program. This arrangement is very similar to the way collection agencies get paid by creditors. Since credit counseling companies rely on payments from the credit card companies, they do not truly work for YOU.

The downside to credit counseling is as follows:

• In Credit Counseling you pay the full amount of debt owed plus interest, sometimes the interest rates are lowered only nominally or not at all. On average to 11%.

• Credit counselors don't always make timely payments resulting in late fees and a derogatory credit history.

• Not all Creditors agree to reduce your interest.

• Payments are still high and it typically takes 5 or 6 years to pay off the debt.

• In order to pay off your debt in full, credit counseling monthly payments are usually equal to or greater than the minimum payments you are currently making on your credit cards.

• Most Credit Counseling programs have a high failure rate. Their own industry estimates only a 21 - 26% completion rate.

• Many of these companies are funded by YOUR creditors - the very people to whom YOU owe money - and thus, they must demonstrate loyalty to the creditors not you.

• Despite claims otherwise, credit counseling may appear on your credit report. This is viewed negatively by most lenders and may hinder your ability to refinance a home, get a loan, or obtain new credit.