Credit Counseling Companies

Credit counseling organizations, often referred to as “Consumer Credit Counseling”, are organizations that help individuals get out of debt by paying off their entire credit card balance. They simply collect a monthly payment from you and, in turn, pay your creditors for you. They are some of the largest non-profit organizations in the business.

Questions: If they are non-profit, how do they make money?

Answer: Credit counseling organizations are paid by the credit card companies. They typically are reimbursed by the credit card companies, making between 10 cents to 15 cents on every dollar that they collect from you.

Are there advantages to going with a credit counseling company?

Yes, there are some. They take over the payments to the credit card companies for you, so that you do not have to deal with it each month. In addition, they may be able to help eliminate some late charges on your account, or some over-the-limit fees.

What are the disadvantages of working with a credit counseling company?

The disadvantages of working with a credit counseling company can be numerous.

  • The length of time you are in the program will almost always be double, if not triple, that of a debt reduction company.
  • Because credit counseling companies work directly with the credit card companies, they can adversely affect your credit report immediately.
  • These organizations typically cannot lower your monthly payment, as you are paying back the entire amount that you owe. They do not negotiate a settlement.
  • There is no incentive by these companies. The more they get from you to pay back the creditors, the more money they make.
  • The drop-out rate for these companies is extremely high, as people often find that they could be doing the same thing themselves, without paying any fees.