Credit Counseling Services

Written by: Rudy Freeman - on July 28th, 2006

Enrolling in a Credit Counseling Service is apparently a better alternative than filing bankruptcy. However, it has certain pros and cons you should be aware of. First of all, let's make it clear that NOT all credit counseling services are the same. Some are better than others, so you should "shop" around first before deciding to join a program. But in general, most of them are "non-profit" organizations, which claim to be able to help you consolidate your debts and negotiate with your creditors to reduce interest rates. Although not for profit, these organizations charge you a fee for the services, sometimes optional, but most of the time mandatory. The fees are usually a fixed amount. But in some cases they can be proportional to your number of accounts or amount of debt.

One of the advantages of enrolling in such a service is that a credit counseling service can negotiate with your creditors more effectively. Practically not all of your creditors will agree to their proposal, but many creditors are willing to accept it. Their proposal is basically a request to lower interest rates and monthly payments. As a result, you may be able to save more money in the form of lower interest amounts, compared to the fees you pay for the services. Another advantage of using a credit counseling program is that you make only one payment instead of many a month. And that will simplify your personal finance.

All About Email Marketing

Email marketing tools that give marketers the unfair advantages CLICK HERE

Sales Letter Creator

Write your sales letter easily with this incredible software CLICK HERE

The disadvantages of enrolling in a credit counseling service are also considerable. First of all, it will stay in your credit report for up to 7 years. Although it will probably not affect your credit scores, the remark that you enrolled in a credit counseling service may prevent future lenders from extending credits to you. In some circumstances, lenders may even consider enrolling in credit counseling service as worse as filing chapter 13 bankruptcy.

Another disadvantage in credit counseling programs is that you may have to pay more than the regular fees for the services. Most services prefer payment in the form of Electronic Fund Transfer (direct withdraw from your checking account). If you are unable to authorize that, you may have to pay by money order or cashier checks, which cost from $0.85 (i.e. postal money order) to $15 (i.e. cashier check) a payment. Not only that, some credit counseling services even don't have a toll-free phone number (or a toll-free number is only for first time contact). You may end up paying a sizable amount of telephone bills if you want to contact them.

Article Site Builder

Great software to build websites from your articles in seconds CLICK HERE

Forex Easy Cash

The Forex Money Machine That Prints Non-Stop Profits For You Automatically, The Lazy Way..." Once You Turn On This Plug-And-Play In-A-Box Money System, It Can't Stop Sending You Cash... Even If You Want It To... CLICK HERE

You also need to know how a credit counseling program works. After you enroll in the program, it doesn't mean that you're done. Due to a length process, it may take a month or more to have the program run smoothly. Usually they will let you know that you still have to continue paying your bills for a while to avoid late charges. In most cases you also have to contact your creditors to change the due dates so that your payments (through the counseling service) will arrive in time. And you can't assume that the service will do that for you.

Finally, you should also be aware that those counseling services profit from your payments just by the "time-value of money." Stating a reason that mails take time to arrive and funds take time to clear, credit counseling services may hold your payments as long as a month before distribute them to your creditors.

In short, credit counseling services may not be a perfect solution to your debt problems. Some lenders consider it encouraging that you're responsible for your debts; some consider it as worse as filing bankruptcy. While it may save you interest to enroll, it may also leave a black mark on your credit file. Before you enroll in such a service, do your research and figure out if it's really worth it.