This brief article will show you some of the problems with credit counseling programs. These are the issues that result in a drop out rate of in some cases over 80% of the debtors who enroll themselves in these programs. People should be knowledgable of these facts before they enroll themselves into a credit counseling program to make sure for themselves they are making a good financial decision.
1. Most of the consumer credit counseling establishments are started and paid for by the actual credit card companies themselves. They serve as a sort of middle man for the credit card company to collect the debt amount owed.
2. The consumer credit counseling establishments work for and represent the credit card issuers; they do not work on behalf of the client. The credit card establishments orderto the credit counseling company the minimum payment that is required and the APR. There is no negotiating at all on this.
3. The consumer credit counseling firms can lower the APR, however they can never actually lower the principal balance. The common APR on one of these programs is around 12% which is more in the middle than actually being very low. By not lowering the principal balance they are not really a form of credit card debt relief, this is just an accelerated payment program.
4. You will wind up actually paying more than the original debt amount, due to the monthly maintenance fees, interest and reduced monthly payments which greatly increases the amount of time you are going to be stuck in debt.
5. It can have a brief derogatory effect on your FICO credit score and is made a record to the public on your credit history, during the duration of the program.
6. Attaining a home loan while on a consumer credit counseling program becomes extremely complex, on the edge of being impossible.
7. Here is the biggest reason debtors fail and read carefully. If you drop behind only one payment while on a credit counseling program you will be kicked out of the program and the credit card companies will not allow you to get back into another program for up to a year. Putting your bills right back to where they were before, high interest and all. This is the number one factor why over 75% of the clients signed into these programs fail off.
Relax for a minute and think about this. They put you on a credit counseling program that may last 5 years or more. As we all know this journey called life has its ups and downs. If you find it pretty tight to be on the program in the first place you will fail off. Any unpredictable financial problems as little or large as they may be can contribute to you going past due just one payment and getting kicked out of the program. You need to sincerely think about how stable your finances and income security are before enrolling into a credit counseling program to evade being part of that 80%. The bottom line is those individuals with a large sum of debt such as $10,000 or more should really look more towards credit card debt settlement than credit counseling. Credit counseling is more reasonable for debtors with lower sums of debt that do not have much of any issues keeping up with their bills in the first place. If you are looking to lower your debt and get out of debt in a timely fashion, then credit counseling is just not for you.
Steve Bis is a debt analyst and research assistant with the US Consumer Advocate, which primarily practices in credit card debt relief.
- Steve Bis
Highlights 
December 31st, 2007 