People ask me all the time, “Is consumer credit counseling a good idea?” These friends and clients expect either a “yes” or “no” answer, so I often assume they walk away disappointed (or confused) by my answer. The truth is, credit counseling is a good idea in some cases and a really bad idea in others.
If you use the right counselors and you do what they say, you’re going to be better off. Those are big ifs, especially since the best consumer credit counselors are often the ones which advertise themselves the least.
If you choose the wrong type of credit adviser or debt settlement expert, you can make your debt situation much worse than it was before.
Don’t Use Credit Counselors Who Make a Profit
When you think of a credit counselor, you probably think of some kind of debt settlement or debt consolidation start-up outfit which advertises online for customers. In your mind, these people may or may not have an office and they may or may not be real experts.
These people might take your money and get out of town–that is, simply blend back into the Internet.
It doesn’t have to be that way. Nonprofit credit counseling foundations exist that give you real credit advice, doesn’t charge you a ton for their services, and is accredited by the Better Business Bureau. I’m going to tell you where you can get the help you need without paying some charlatan in the faint hope they can help. These people have a basic conflict of interest.
Credit Counseling Works in Certain Instances
When you have high-interest debt and it doesn’t look like you’re going to be able to keep up with payments, contact a non-profit credit counseling service that can help you set up a repayment plan.
Notice I wrote “non-profit”. I’m not talking about paying a bunch of money to get credit counseling. When you do that, you could end up falling into an even bigger hole. Not-for-profit organizations exist to help you negotiate lower interest rates. Once you renegotiate your debt, you’ll be able to pay off your debts. This could take years.
Consumer Credit Nationwide
One of the best nonprofit organization which can help you with consumer credit counseling is “Consumer Credit Nationwide“. These group was founded in 1993 to help people deal with personal and family debt crisis. The CCN is respected in the field. Because they aren’t trying to make a profit off of your misfortune, you can trust they have your best interests in mind.
Below is the physical address, toll-free telephone number, fax number, and email address where you can contact Consumer Credit Nationwide. Talk to these people (or someone like them) before you start talking to just anyone with an ad online.
3445 Spring Street
Davenport, IA 52807
- Consumer Credit Phone Number – 1-800-Debt Help (800-332-8435)
- Consumer Credit Fax Number – 563-359-8863
- Consumer Credit Email Address – Info@800DebtHelp.com
If for some reason you decide not to speak with the people at Consumer Credit, I recommend you speak with someone at the Association of Credit Counseling Professionals or the Association of Independent Consumer Credit Counseling Agencies before you make the desperation move of contacting an online debt settlement company or a profit-seeking credit counseling business. These people can put in contact with the information and professional assistance you need.
Credit Counseling Does Not Hurt Your FICO Score
It used to be an axiom that credit counseling would hurt your credit score. That’s no longer the case. Fair Isaac ran studies and determined that people using credit counselors in a structured debt repayment plan were no more or less likely to go bankrupt or otherwise default on their loan than any other consumer. The Consumer Affairs office of Fair Isaac has issued a statement saying the FICO score ignores mentions of debt management plans or credit counseling help.
When Is a Credit Counseling Reference Removed?
The references to your credit counseling activities stay on your credit report until you’ve finished paying off your debt, so until your repayment plan is successful, it stays. Once you’ve finished with payments, all reminders of that stage in your credit history get removed.
Not 100% the Case – Some Lenders Still Penalize
Fair Isaac’s spokesmen say that some lenders still penalize, if for no other reason than the fact they haven’t got the message yet. That means some credit institutions punish people in a debt repayment plan. If you learn such a bank or finance institution doesn’t pay close enough attention to know their own business (and worse–punishes you wrongly), you’ll want to avoid these creditors in future. You probably already knew that.
Will Consumer Credit Counseling Hurt My Credit Rating?
Lynnette Khalfani-Cox posted this video to YouTube answering a question from one of her viewers about the CCCS industry. If you have 5 minutes to hear the answer, it provides a nice lesson on how this industry works, how much using one of these services might help or hurt, or whether you should use a counseling service yourself.
Like me, she recommends going to a non-profit CCCS organization. These are sanctioned by the government and seen as legitimate, bona fide helpers. If you go to a for-profit company, you might be getting a scam artist. I’m not saying they all are, but many people view them as preying on the unfortunate.
Lynnette also discusses “debt settlement” companies, which she says are a much more dangerous option for debtors. Those reading this should watch Lynnette Khalfani-Cox’s videos on YouTube, because they are informative and straightforward.
Learn to Spot a Scam – Debt Counseling Firms
Just because legitimate nonprofits exist that can help you via credit counseling, don’t assume all such debt counseling companies are the same. In fact, most of the ads you see online for debt help outfits are hardly legitimate. Many debt settlement companies provide little service for what you pay them. Some of these companies collect their fees, then disappear.
Even if these people stay around and help with your problems, you need to know that when you negotiate for a debt settlement where you pay less than what you owed, this hurts your credit score. You’ve paid less than you agreed to pay in the first place, so your credit score reflects that truth.