The Pros and Cons of Consumer Credit Counseling

Just as Americans find themselves increasingly indebted to credit card companies and payday lenders, interest rates have begun to rise and housing values have gone the other way. Adjustable rate mortgages have "reset," leaving millions of Americans with higher mortgage payments than they ever intended, and to make matters worse, even car loans have been trending longer, which means that borrowers are often "upside down" on their loans long before they're ready to trade in their old cars. All of this has made credit counseling more attractive, but many consumers have unanswered questions about what credit counselors can do and how it can affect their credit. This article endeavors to answer some of those questions.

The Good News About Credit Counseling

The good news about credit counseling is that it can be educational. American schools do not teach financial literacy and that's one of the primary functions of credit counseling.

However, most people who seek out credit counseling are in the market for a debt consolidation service. The good news about letting a credit counselor negotiate with your creditors to consolidate your debts includes:

Simplicity: All of your bills will be due on the same day, and instead of sending individual checks to each of your creditors, you only send one check to your credit counselor - he or she then disburses payments to your creditors. This also helps you avoid late fees or missed payments.

Savings: Your credit counselor will work with your creditors to get them to forgive prior late fees and drastically reduce your interest rates. This should result in not only a reduction in your principal balance, but also a rather substantial reduction in the sum of your monthly payments.

Credit Preservation: Credit counseling lets you avoid the black mark of bankruptcy on your credit report. Furthermore, by not entering into bankruptcy, you don't have to worry about forfeiting any of your personal property.

And Now for the Not-So-Good News

Unfortunately, using a credit counselor to enter into a debt consolidation agreement with your creditors is not without its consequences. For one, even non-profit credit counselors need to pay their own bills, so there are fees associated with debt consolidation services. While these fees should not exceed the savings you gain through the lower interest rates obtained through consolidation, the cost of a credit counselor's services must be taken into account. Another negative is that while your credit is protected from the damage of bankruptcy, most creditors do report that you're using a credit counseling agency, and your credit report will typically be marked "Does not pay as agreed." This is not to be taken lightly, but it beats the heck out of the 10-year stain of bankruptcy. And besides, many new creditors will look favorably upon the fact that you sought out a credit counselor when you needed help. "Does not pay as agreed" is much better than a charge-off or delinquent debt. Finally, it must be noted that most credit cards will suspend or cancel your accounts when you enter into a debt consolidation plan. This is not necessarily a "negative" though, since you shouldn't be using your credit cards while you're trying to pay them down anyway.

Is Credit Counseling Right for You?

Almost anyone can benefit from the educational aspects of credit counseling, but whether the more serious debt consolidation services are right for you is a decision that you need to make for yourself. Debt Relief USA's goal is to provide all of the information you need in order to make an informed choice. It is our belief, however, that the pros of credit counseling greatly outweigh the cons, at least for people who truly need it. Good luck on your journey!

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