Debt Payment Options: Credit Counseling Program

When facing debt issues, many consumers may consider using a “Non-profit” Credit Counseling program to help resolve their debt? Before you make that decision, you should be aware how these programs work.

When you go to a Credit Counseling agency for help, they will design a reorganization plan to pay your debts. The credit counselor will ask for your account information and based on your creditors and balances, they will base your monthly payment on pre-determined minimum payments and interest rates that each creditor will accept.

Typically, creditors will agree to lower interest rates to the range of 12-20%. Additionally, many creditors refuse to participate in credit counseling programs, and therefore, some debts may be excluded from the program.

If accepted into a Consumer Credit Counseling program, all your accounts are closed. You will make a monthly payment to company who will disburse that payment to your creditors proportionately. Unfortunately, sometimes your creditors are not paid by the due date, and you still end up with late and over the limit fees.

The creditors who participate in this program agree to compensate the agency a “fair share” contribution based on how much is collected from you each month. In this sense, the counseling organizations are acting as collection agencies for your creditors. Actually, the largest of these agencies, the Consumer Credit Counseling Services or CCCS system was founded in 1972 with the sole purpose to recover debts and keep consumers from filing bankruptcy. These Credit Counseling agencies are essentially working for the credit card companies.

While you are on the program, your creditors will likely report to the credit bureaus that you are participating in a hardship program which would damage your credit score. This can be reported for up to seven years after you complete their plan.

Also, you shouldn’t be fooled by the term “non-profit”, which makes it sound as if the company is a charitable organization working on your behalf. Although many Credit Counseling companies are non-profit, this does not mean they are not trying to make money. The Consumer Credit Counseling industry is a billion-dollar industry. These “non-profit” companies often pay executives outrageous salaries or in certain instances, independent “non-profit” companies work closely with a second company that actually collects the fees.

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