Well, let's take a look. Credit counseling is when you use a company to manage payment of your consumer debt for a prescribed period of time - typically 3-5 years. In this article we'll review the pros and cons of credit counseling to help you see if it right for you.
Let's cover the pros first.
Pro 1 -'Re-Rating' your delinquent accounts - If you enter into a credit counseling program with delinquencies already on your credit report, it is possible after a period of time to have those accounts're-rated'. The credit counseling company can negotiate with your creditor to get the creditor to agree to're-rate' or're-age' or'cure' your account once they have receive a pre-determined specified number of on time payments. Once you have made these payments, the creditor will note on your account that you are now paying them as agreed. You want your credit accounts to get're-rated' as quickly as possible. This process is a'line in the sand' from being delinquent to having good credit again. The more on time payments you can show on your report the better and the quicker your credit bounces back.
Pro 2 - simplified payments. Generally, you wouldn't enter into a credit counseling program one credit account that you wanted to manage. Most of the credit reports that I have seen where my customer was in credit counseling had more than 5 credit accounts in the program. With so many payments to worry about, it's no wonder why some payments get missed etc. In a credit counseling program, you typically make one payment to the counseling company and they in turn pay your creditors.
Pro 3 - Chances are, if you had any delinquencies with your credit cards you are likely to be paying an interest rate greater than 20% on them. Creditors are more likely to reduce your interest rate if they know you are in a counseling program. They might not even charge you interest so that you can pay your debt to them. This will allow you to pay them off quicker.
Now let's cover some of the cons.
Con 1 - The creditor who lowers or completely stops charging you interest will most likely freeze your account or even close your account so you can't use it once you are in this program. This will happen, even if you had been paying them perfectly before. You being in the program suggests to them that you are in trouble. This is contrary to what you might be thinking that you are getting help and they should be considerate of that.
Con 2 - Being in credit counseling is marked on your credit report. Each creditor who you include in your program will probably note on your credit report that you are in credit counseling. Most often I have seen it noted something like:'Customer in CCS.' This notation supposedly doesn't hurt your credit score, but it definitely will impact someone who reviews your credit report looking to make a decision about giving you credit.
Con 3 - If you are trying to get a mortgage, some loan programs won't allow you to qualify if you are in the program. The viewpoint on credit counseling has gotten better over the years, but in some cases, in terms of loan qualification, being in credit counseling is looked at just as bad as bankruptcy. Again, this doesn't seem quite fair as you put yourself into credit counseling so you could pay your debt, make things right, and avoid going bankrupt. Go figure.
Con 4 - This is only a problem if you don't start the program correctly. When you are going to start a credit counseling program it could take several months for the program to be set up and to have the program start to pay your creditors. You must make sure that you continue to pay your creditors until your payment plan starts. If you don't make sure these bills get paid and you had good credit your credit will suffer dramatically.
Now here we are, you have some of the pros and cons of credit counseling as a method to getting out of debt. This program might or not be for you. Only you can tell. You'll find additional information on getting out of debt in the credit article section on GetPrequalified.com.
Article by staff writer
