When the bills start to accumulate and an individual has trouble keeping up with payments, many consumers turn to credit counseling. As with anything, there are pros and cons to credit counseling, but consumers even thinking about it need to realize the benefits and drawbacks associated with it. Thousands of credit counseling companies out there claiming to offer help, but consumers are warned to always thoroughly research credit counseling companies before signing on that dotted line.
Pro: Debt Reduction
Anyone overwhelmed with debt may be tempted by credit counseling services that promise to help substantially reduce or eliminate debt in 5 years. Such services often consolidate a person's debt into one payment and ensure payments are made on time. In many cases, a credit counseling service is able to reduce the interest rate on various accounts.
On the other hand, a person enrolled in a credit counseling service may find it extremely difficult, if not impossible, to open new accounts or revolving credit lines for several years, during and after debt repayment. Current revolving accounts are generally closed or suspended as well.
Con: Fees
Many consumer credit counseling services or organizations charge up-front fees for their services that can be quite expensive. On top of these fees, a monthly service charge may be applied to an individual's account as long as it takes for debts to be repaid.
Con: Broken Promises
A consumer credit counseling company or service is only as good as the person who runs it. Many such services promise to make payments for clients and then don't follow through, resulting in late payments for the consumer and damage to credit report rating and scores. Consumers should also make sure that proposed payments are noted in writing on the contract and won't increase.
Con: Lowered Credit Score
In many situations, individuals may find their credit score or rating lowered significantly upon notification to credit reporting agencies that a credit repair or counseling service has taken over payment schedules, because accounts may be noted that payments are not being paid as were agreed to in lending or credit contracts. In addition, creditors are notified that payments are being received through a credit counseling service, both of which hurt a credit score.
Member Comments