The whole idea of credit counseling has little appeal to most American consumers. It is associated with an inability to manage one’s own financial affairs, and is largely seen as a last ditch effort to somehow digging out from under massive credit card debt. In some cases, credit counseling is required prior to a declaration of bankruptcy and in others, consumers independently seek assistance in an attempt to eliminate debt.
Credit counseling historically advises two methods of debt relief, and they are debt consolidation and debt management and is therefore limited in its approach to helping consumer eliminate credit card debt. While debt management programs are certainly helpful and work for a number of Americans, there are also certain qualifications to enter into it, too. Debt consolidation has a number of negative drawbacks attached to it. One, it is necessary to obtain a secured consolidation loan, which entails putting up collateral in order to receive one. That puts the home or other hard assets up as security against default. It is a notion that makes little sense because credit card debt is unsecured debt and converting it makes no logical sense when there are other ways of getting out of debt.
One of the other negatives to credit counseling is the fact that many companies or services are funded by the major lending institutions. Free counseling is offered to consumers, but it is not without strings attached. By facilitating and offering these free services, creditors believe they can get more of a return on their outstanding loans to consumers. It is a form of control. Even Christian debt counselors or non-profit debt counselors are sometimes funded by these lenders. There has been negative talk about paid debt relief companies, but the flip side is that they do work solely for the individual without ties to lenders. Their fees will almost always work out to be worth the cost because of the additional savings they provide in their negotiations with lenders.
Heavy credit card debt is compounded by high interest rates, late payments, and threats from debt collectors. The key is to eliminate as much of it as possible not simply restructure or rearrange it to make it seem more workable. Often that is what debt counseling does not confront head on. Debt management is often offered as an option, but debt counselors especially the so called non-profit ones will advise that a set up cost shouldn’t be more than $50 and that the monthly cost is anywhere between $25-35 per month. For profit debt management companies work totally on a contingency fee basis. In other words, until the consumer has paid off his first lender, no fees at all are involved, and even then it is based on percentages. Which makes more sense? A free debt counseling service that charges fees, or a professional debt relief company with expert negotiators who are paid only when the consumer pays off a creditor?
In choosing a debt counselor to find a program to get out of debt, it is necessary to do a lot of research on any company the consumer plans to talk with. In 2005, a U.S. Senate investigating committee found that there were many non-profit companies that were designed to generate huge sums for their for-profit affiliates. Choose wisely. It is your financial future.