Credit counseling agencies: 5 big reasons to avoid them

Duran Mueller
Jun 9, 2007
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Credit counseling agency is a vital channel between your debt and your creditors. What they do essentially is negotiate with your creditors and reduce your monthly payments and interest burden. But, is credit counseling really that good as it is promoted in various advertisements and campaigns? Take a look at the following points and you might change your perception.

Credit counseling agencies are partly funded by credit card companies, and this is not without its reasons. Whenever a person with credit card debt goes for credit counseling, the credit counseling companies get payments for reducing the interest rates, repayment terms and repayment amount. Credit card companies can give incentives to credit counseling firms for not 'doing their best'.

The personal information with credit counseling agencies can be at risk, if you don't complete the program and withdraw your relations with the credit counseling agency.

It is rare to find a credit counseling agency with relations with all the credit card providers and credit card companies. So, if you hold a wide spectrum of credit card debt, chances are big that your credit counseling agency might not have the 'right relations' to get the best deal for you. This means that for some credit cards you won't get any professional benefits and the rationale of paying high credit counseling fees won't justify itself.

How many of credit card debtors get benefit of credit counseling? A survey indicated that the completion rate of credit counseling agencies is just 26 percent. What happens to the rest? Consider a situation where a credit counseling agency has charged a huge amount initially and was not able to complete the process, or was imposing a deal which was not at all attractive. Things can get worse for the debtor in this situation.

In majority of the cases the credit counseling agencies takes the first payment as their fees. So, your hard earned money goes in vain. Though, this process is highly criticized, but it is still prevalent.

Credit counseling agencies are not with their drawbacks, the best thing is to avoid credit card debt altogether. Good financial practices, avoiding multiple credit cards, staying within your income levels, paying your outstanding balances on time-- all these go a long way in keeping the credit card debt at bay. But, if things really warrant some help, why not arrange an attorney to negotiate your credit card debt for you?