The typical role of a credit counseling service is to
negotiate lower payments with your creditors on your behalf and pay the bills
for you. In the end, you send the credit
counseling service a check once a month to cover the total cost of all
negotiated fees, which usually includes a fee for the credit
counseling service (even non-profits have to make money).
There are
two problems with this approach: (1) A lot of what they do for you, you
can do yourself! Basically, your
creditors want to be paid. They don't care who pays them; and (2) If you are
truly downright broke, how in the heck
can you muster up enough funds to pay your creditors even a
negotiated rate!
Credit counseling is best suited for
people who: (1) have some money and haven’t reached the optimum level of
"brokeness"; (2) just can't seem to organize themselves enough to pay
their bills; or (3) are just plain
afraid to talk to their creditors. For
everyone else, it fails most of the time.
One woman (let's call her Sue) found
herself struggling with a $1,000 credit card debt that accumulated to close to
$3,000 due to late fees and collection charges. Sue was unable to pay anything toward
eliminating the debt. Finally, three
years later, Sue’s finances improved.
She acted as her own credit counselor and contacted the creditor. They negotiated a lump sum pay-off of
$1,000. Part of the deal they negotiated
included a written statement from the creditor detailing their agreement and a
promise to remove negative information from her credit file. As soon as
Sue obtained the written agreement from the creditor, she promptly paid the
$1,000 with a cashier's check saving herself nearly $2,000 in late fees and
cancellation charges. After the
success of this negotiation, Sue was able to make similar arrangements with
other creditors. Remember, Sue could not pay her bills for years, but once she
got back on her feet, and her finances improved, she was able to pay her
delinquent bills.
A lot of creditors look
favorable on a person who is trying, plus something is better than nothing. However, there are some creditors who are
less likely to negotiate a lower pay-off if the debt is relatively new or they
know you need to wipe off the old debt to buy a new house, but usually
some type of payment arrangements can be made.
I'm sure, there are people who have
benefited from credit counseling, but in order to benefit you must have some
money to pay your bills, and if you have some money to pay your bills, then
perhaps you can negotiate your own way out of your financial crisis. It's you're choice.
A final note about credit
counseling to consider. It can appear on your credit
record as “debt management” and once again, you are subject to being prejudged.
