Consumer Credit Counseling

For those consumers who are not disciplined enough to create and stick to a workable budget, can't structure a repayment plan with their creditors, or simply can't keep track of mounting bills, might consider contacting a consumer credit counseling organization for debt relief.

Many credit counseling organizations are nonprofit and work with you to solve your financial burdens. All consumers should be aware that just because an organization says it’s "nonprofit," there's no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or urge consumers to make "voluntary" contributions that can cause to accumulating more debt. Consumer credit counseling companies, in most cases, are controlled by the credit card companies. Counseling companies are paid by the creditors under the Fair Share Contribution Act, sometimes, as much as 15% of the debtor’s money, and in the end are nothing more than an extension of a creditor’s own collection efforts.

Most creditors participate with these programs…for those that don’t; you may be left to deal with them on your own. You must pay back every penny you owe, plus their fees, plus interest which is usually 5 to 12%. On $20,000 of debt, you would end up paying $32,000 over the course of many years. These programs typically outperform the financial capabilities of the struggling consumer. Due to the high payments required by the debtor, credit counseling programs have an 82% failure rate. Be aware there are many companies who frequently miss payments to your creditors which, in the end, will bring the wrath of the creditors down on YOU! In the end, consumer credit counseling programs are not well suited for debtors with unstable or unpredictable income and expenses. It is important to verify BBB reports before committing to a CCC.

Traditionally consumer credit counselors offer services through local offices, the Internet, or over the telephone. If possible, find an organization that offers in-person counseling. You can typically find these services at major universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service who operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a workable household budget, and offer free educational materials and workshops to teach and ensure financial stability. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session is free and typically lasts an hour, with an offer of follow-up sessions.

What the FTC has to say about Consumer Credit Counseling:

Be wary of credit counseling organizations that:

• charge high up-front or monthly fees for enrolling in credit counseling or a DMP.
• pressure you to make “voluntary contributions,” another name for fees.
• won’t send you free information about the services they provide without requiring you to    provide personal financial information, such as credit card account numbers, and balances.
• try to enroll you in a DMP without spending time reviewing your financial situation.
• offer to enroll you in a DMP without teaching you budgeting and money management skills.
• demand that you make payments into a DMP before your creditors have accepted you into the program.

To see more, check out the FTC Facts for consumers at www.ftc.gov