501(c)93) nonprofit consumer credit counseling service (CCCS) agencies offer –
- Free education on how to better manage your finances and debt,
- Debt management programs (DMP) to consolidate credit cards into one lower payment with reduced interest rates, and
- Bankruptcy counseling, a requirement for consumers to complete before filing for bankruptcy, is aimed at helping people avoid bankruptcy and its financial consequences.
We will teach you how to consolidate credit card bills using consumer credit counseling services. We will also illustrate the pros and cons of consumer credit counseling services.
You can then compare this type of debt management program against debt settlement and consolidation loans. We also share a free credit card relief program guide here, allowing you to compare the pros and cons of each debt relief option side by side. The point of this website is to help you get out of debt using the correct option and the best company.
What is a consumer credit counseling service?
A consumer credit counseling program is a debt relief option designed to help individuals struggling with overwhelming debt. Nonprofit credit counseling agencies typically offer the program. It starts with a credit counselor giving the consumer a free consultation that involves creating a personalized plan for managing and paying off debts.
A credit counselor will assess the individual’s financial situation, including analyzing their income, expenses, and debts. Based on this information, the credit counselor will work with the individual to develop a budget that prioritizes debt repayment and helps them meet their other financial obligations.
One of the key components of a consumer credit counseling program is the debt management plan (DMP). This structured repayment plan consolidates the individual’s credit card debts into a single monthly payment. In addition, the credit counseling agency will work with the individual’s creditors to negotiate lower interest rates and fees, which can help reduce the overall cost of the debt.
As part of the program, individuals will typically receive ongoing education and support to help them stay on track with their debt repayment goals. This may include financial education classes, workshops, or one-on-one counseling sessions with the credit counselor.
There may be better options than a consumer credit counseling program for some. Therefore, it is essential to research and compare different debt relief options before deciding. Unfortunately, thousands of CCCS clients cancel before completing it. They cancel and switch to a lower monthly payment option with debt settlement or sometimes resort to bankruptcy. Additionally, while many credit counseling agencies are nonprofit, they all charge fees for their services, including an initial enrollment fee of up to $75 and monthly fees that can cost up to $50.
Pros and Cons of Consumer Credit Counseling Services
Pros of Consumer Credit Counseling Services to Consolidate Credit Card Debt:
- Lower interest rates and fees: CCCS can negotiate with your creditors to lower your interest rates and fees, reducing the overall cost of your debts and making them easier to manage.
- Consolidated monthly payments: If you enroll in a debt management plan (DMP), CCCS consolidates your debts into a single monthly payment, simplifying your finances and making it easier to track your payments.
- Personalized financial education: CCCS can provide personalized financial education and counseling to help you improve your money management skills and avoid future financial problems.
- Nonprofit organization: CCCS is a nonprofit organization, which means they operate on a mission-based model rather than a profit-based one. As a result, their services are typically more affordable than those provided by for-profit debt relief companies.
- Avoiding bankruptcy: CCCS can provide an alternative to bankruptcy, which can have serious long-term consequences for your credit score and financial future.
- Re-age late credit card payments to show “current” on payments, potentially improving credit scores. How a CCCS program affects a person’s credit score varies from person to person, depending on their financial situation at the time of joining.
Cons of Consumer Credit Counseling Services to Consolidate Credit Card Debt:
- Possible impact on credit score: Enrolling in a CCCS debt management plan (DMP) may hurt your credit score, as creditors may report that you are making payments through a third-party agency. Additionally, closing credit card accounts as part of the DMP can reduce the amount of available credit and affect your credit utilization ratio.
- Limited types of debt: CCCS typically focuses on unsecured debts such as credit card debt and medical bills, and may not be able to help with secured debts such as a mortgage or car loan.
- Length of program: The length of a CCCS debt management plan can vary depending on the amount of debt and your ability to make payments. While a DMP can help you pay off your debts more quickly than minimum payments, the program takes around five years to complete.
- The high cost of consumer credit counseling services: While CCCS is a nonprofit organization, they charge monthly fees for services that cost up to $50. Over five years that can add up to a high cost. And in addition to monthly fees, credit counseling services can charge up to $75 to enroll in the service.
- Potential impact on future credit due to a credit counseling third-party notation on credit reports: While CCCS does not involve settling or discharging your debts like other forms of debt relief such as debt settlement, enrolling in a DMP may still adversely impact your ability to obtain credit in the future, as some lenders may view the program as a sign of financial difficulty.
Does a consumer credit counseling program affect your credit score?
Enrolling in a consumer credit counseling program can impact your credit score. Still, the effects are typically less severe than those associated with other forms of debt relief, such as bankruptcy or debt settlement.
When you enroll in a credit counseling program, the credit counselor will work with your creditors to negotiate lower interest rates and fees, which can help you pay off your debts more quickly. However, creditors report you are on a credit counseling program to credit reporting agencies. This notation on your credit report could hurt your overall creditworthiness and ability to borrow.
When you enroll in a DMP, you agree to close your credit card accounts and make regular monthly payments to the credit counseling agency, which then distributes the payments to your creditors. Closing credit card accounts can lower your credit score by reducing the amount of available credit and affecting your credit utilization ratio.
However, the impact on your credit score is often temporary. For example, your credit score may gradually improve as you make consistent payments on your DMP. And if you’re behind on credit card monthly payments, a consumer credit counseling service can re-age your payments to show current, improving your payment history.
Also, because credit counseling programs do not involve settling or discharging your debts, lenders may view them more favorably than other forms of debt relief.
While enrolling in a consumer credit counseling program may impact your credit score, it can also help you manage your debts effectively and avoid more serious financial problems. You’re paying off your debt, doing the responsible thing.
What is the Best Consumer Credit Counseling Service?
To find the best consumer credit counseling services –
- Visit the Department of Justice’s website for a list of local and licensed nonprofit consumer credit counseling companies.
- Check out the Top 20 Debt Relief Companies List for 2023.
- Read company reviews, including the American Consumer Credit Counseling Review for 2023
- Use companies that are Members of The National Foundation for Credit Counseling (NFCC)
Finally, don’t forget to compare credit card relief programs and companies. To compare consumer credit counseling vs. credit card relief programs, visit this page next.