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Debt Consolidation Facts

1. If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will identify you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (Fair Isaac).

2. If you miss 1 or 2 payments on your credit card debt, the issuing company will skyrocket your interest rate to a whopping 27% - 30%!

3. Out of a random sample of 3 million American consumers (included in Experian's National Score Index), 51% of them have at least 2 credit cards and 14% of them have 10 or more credit cards.

What Can a Credit Counselor Do for Me?

The first thing you should consider if you’re looking into credit counseling is whether you really need it. If you’re unable to pay the minimum payments on your credit cards, have missed any single bill several times in a row, or haven’t been able to negotiate a manageable payment plan with your creditors, you might want to start seriously searching for an effective, legitimate credit counselor.

One of the major goals of a good credit counselor is education. They’ll help you set up a workable budget and a payment plan to get your debts under control. This Debt Management Plan, or DMP, provides steps for you to follow that ideally will be realistic and manageable for you, and eliminate your debt. In addition, credit counselors offer services that can help you formulate a workable budget to keep you from falling into debt again in the future.

Many credit counselors offer such services even for those who don’t need help digging out from under their bills. In fact, a legitimate credit counselor will often offer budget counseling, counseling on purchasing a home, foreclosure prevention, and other money management assistance.

Typically, a credit counselor will negotiate payments with your creditors, with the goal of lowering monthly payments and reducing interest rates, especially on credit cards. They’ll also help you find options for debt consolidation, if this looks like it would be helpful for your individual situation. Then they’ll help you set up your debt management plan and handle your payments to your creditors for you. You provide a monthly check, which the counselor uses to make your payments. Sometimes a counselor will keep your first payment, so be sure to ask about their policies on this.

Video: Digging Out of Debt

You could, of course, do this on your own. You can call your creditors directly and negotiate lower payments, lower interest rates, and even ask them to waive some of your debt. A legitimate counselor, though, has more experience with this kind of negotiation, and so, might be able to lower your payments further than you would on your own. Having someone else handle this often stressful process also removes the intimidation factor. If fear of negotiating directly with your creditors has you unable to address your problems at all, hiring a professional will get you on your way. 

What Can Credit Counselors Not Do for Me?

A credit counselor can help you manage and eventually pay down your debt, but they can’t completely remove your debt. If a credit counseling service promises to reduce or eliminate your debt after you pay an often high up-front fee, run the other way. Most of these arrangements end with the “counselor” disappearing with your money and you worse off than you were before.

A credit counselor also can’t guarantee that you’ll eliminate your debt, because this depends on you. They can give you a debt management plan (DMP) that shows you how to manage your debt, but if you don’t follow that plan, it’s not going to help you. The National Foundation for Credit Counseling reports that about half the people who pursue credit counseling will drop out of their program, and at least some of these will end up filing for bankruptcy. Sticking to your DMP can help you get back on your feet and avoid bankruptcy, which can stay on your credit record for as long as ten years.

How Will Using a Credit Counselor Affect My Credit Score?

A credit counselor can’t guarantee that your credit rating will improve. How credit counseling affects your credit rating depends entirely on your creditors. Some will report your account delinquent until you’ve made a minimum number of your renegotiated payments. This can have a negative effect on your score. Others, though, will simply indicate that you’re using credit counseling, and there’ll be no change to your score.

credit counseling

Some creditors are even more willing to be lenient with you if they know you’re in a counseling plan. If you’ve taken the time to pursue credit counseling, chances are you’re serious about repaying your debts, and less likely to default than trouble customers who are floundering on their own. In any case, whether your creditors’ actions lower your overall credit score or not, the effect will be less damaging than delinquent accounts or, worse yet, a bankruptcy.

Video: How Does Credit Card Counseling Work?

How Much Does Credit Counseling Cost?

The cost of credit counseling varies from company to company, but should fall within a reasonable range. Setup fees of $50 or so are generally considered reasonable, with monthly fees of around $25. Payments for other services should fall into similarly reasonable ranges. Watch out for counselors who charge exorbitant up-front fees, expect your creditors to pay them, or who keep part of your monthly payments for themselves rather than redirecting it to your creditors.

Credit Counseling Agencies

Consumer Credit Counseling Service of Greater Atlanta Inc.
Atlanta, GA
1-800-251-CCCS (2227)

Consolidated Credit Counseling Services
Fort Lauderdale, FL
1-800-320-9929

Union Plus Consumer Credit Counseling Service
Washington, DC
1-877-833-1745

American Consumer Credit Counseling
Auburndale, MA
1-800-769-3571

Consumer Credit Counseling Service
Columbus, OH
1-800-355-2227

Money Management International/Consumer Credit Counseling Service
Houston, TX
1-866-889-9347

Cornerstone Financial Counselors
Miami, FL
1-800-357-4223

Springboard—Credit.org
Los Angeles, CA
1-877 947-3752

Advantage Credit Counseling Services
Pittsburgh, PA
1-866-699-2227

GreenPath Debt Solutions
Farmington Hills, MI
1-800-550-1961

Consumer Credit Counseling Service of New Jersey
Cedar Knolls, NJ
1-888-726-3260

Credit Counselors (ClearPoint Financial Solutions)
Richmond, VA
1-800-397-2609

Consumer Credit Counseling Service of Greater Dallas
Dallas, TX
1-800-249-2227

Consumer Credit Counseling Service of St. Louis
St. Louis, MO
1-888-656-CCCS (2227)

Consumer Credit Counseling Service of Central New York
Syracuse, NY
1-800-479-6026