Ogeden Nash once said, “Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” Often, this quote holds true for people who find themselves buried in debt. One such option for such individuals is credit counseling.
Credit counseling was originally developed as a means to collect past due debts. First developed were debt management plans, where the debtor sends the credit counseling agency a lump sum. In turn, the agency distributes that sum to the credit card companies each month, providing the debtor relief from late fees and charges and the convenience of only making one payment. This also offers debtors potential for lower interest rates, as well as removal of referenced delinquent payments from the debtor's credit report.
Although this idea seems great on the surface, there are downfalls to this debt relief option. Credit counseling is often referred to as non-profit, but in actuality the credit agencies used for credit counseling are backed by the credit card companies. This type of program appears like a Chapter 13 Bankruptcy on the debtor's credit report. This is so because the debtor is using a third party, such as a trustee does in a Chapter 13, to pay off their debts.
Credit scores are not repaired through credit counseling. Only time and improving your payment history by making on-time payments can repair negative marks. Credit counseling can also be expensive because you are funding the credit card companies by paying monthly service fees as well as a start-up fee.
Another disadvantage of credit counseling was stated by the website, National Consumer Law Center. Credit counseling has sprouted in the past decade, "Unfortunately, however, complaints about deceptive practices, improper advice, excessive fees and abuse of non-profit status have grown significantly as this new generation of credit counseling agencies has gained market share."
Although negative traits exist within credit counseling, this option can also be very helpful for people. As with any debt relief option, look at the details carefully and commit to your decision one hundred percent before choosing which company to entrust your money with.
