Pros and Cons of Credit Counseling
Sometimes for reasons beyond their control, or because of a lack of self control, people turn to credit counseling to try and regain some degree of control over debts that have exceeded their ability to manage.
In order to achieve the most advantage possible from credit counseling, let's examine some of the pros and cons.
Pros
Legitimate credit counseling services often have relationships with creditors. They are often able to convince lenders to lower or eliminate interest payments and accumulation and waive late charges. This results in a lower debt load.
Many debts can be consolidated into one payment. The creditor makes this payment to the counseling agency who in turn makes the payment to the various creditors.
By setting up a systematic approach to debt elimination, a creditor can anticipate a future point in time where the debts are completely eliminated. This is the proverbial light at the end of the tunnel that will provide the assurance that there is an end to the emotional stress of an uncertain future.
Being enrolled in a creditor sanctioned program convinces creditors that the debtor is conscientiously committed to repayment of what is owed, as opposed to considering the bankruptcy option.
Cons
Perhaps the biggest disadvantage is the effect participation presents is the effect on your credit report. Terms such as “third party assistance,” and “not being paid as agreed,” may limit you ability to obtain credit for up to seven years, although easily obtained credit may have doubtless contributed to the predicament in the first place.
A credit counseling plan will sometimes result in credit card freezes, which eliminates revolving credit being utilized in a legitimate emergency.
It can take several years of timely payment history to repair one's credit history.
And the biggest one: People under a lot of stress over the fear of their ability to provide financially are subject to making poor decisions involving selection of a legitimate provider of credit counseling services. Seeking quick mental relief from the anxiety being in uncontrolled debt places them, they are susceptible to abuses from a less than scrupulous credit repair provider.
The best providers of credit counseling and debt reduction/consolidation services will make every effort to make sure you thoroughly understand the pros and cons involved. Take the time to make sure that you do, too. The problem didn't arise overnight, so don't be tempted to seek an overnight solution. Be wary of anyone who seems to be advising you to take out a loan. A loan might be the best procedure in your case, but at least talk with different providers to see if this is the consistent recommendation.
Especially in the case where unsustainable levels of debt were the result of an inability to delay gratification of urges for non-essential purchases, a good credit counselor will devote ample time to providing understanding of behaviors that led to being in over your head, and strategies for modifying and eliminating those bad habits.