Credit Counseling Services Information

What is Credit Counseling?

The first credit counseling services were offered in 1951 when creditors founded The National Foundation for Credit Counseling, or NFCC. Credit counseling services focus on credit card debt, and address debt relief through two primary methods. (1) Debt management and education and (2) Negotiating payment terms with credit card companies. Credit counseling services do not change the amount of debt you owe to a creditor, rather they influence your payment terms and account status. Through a credit counseling service, interest rates and overall monthly payment can drop up to 20%, and reduce the time it takes to repay your debt from 20 years down to 3-6 years.

Why Do Creditors Agree to a Debt Settlement?

Originally, creditors created the credit counseling industry as a means to minimize their losses by lowering the financial obligations of their struggling customers. However today, most credit counseling service providers are independent from the creditor agencies and offer a customer-centric debt relief service. Creditors will try to minimize their losses, and agreeing to a modified debt repayment plan as an alternative to receiving no payment at all, is common sense. Creditor will receive their payment in full over time, however their profit margin is reduced due to the drop in the interest rate.

How Can Credit Counseling Help You, the Debtor?

A credit counseling service can consolidate some of your monthly obligations, and in the process lower your interest rate and monthly payment. While you are still required to pay your debt in full, the terms of your repayment is improved.

Criticisms of Credit Counseling Services.

In the early 1990s, the number of credit counseling agencies increased significantly. An antitrust lawsuit was filed against the NFCC, arguing that the NFCC was engaging in monopolistic practices, due to the Board of Directors consisting of Creditors. As a result, creditors agreed to also support non-NFCC member credit counseling agencies. The subsequent increase of credit counseling activity also created other serious issues in the industry. By the early 1990s, abuses by certain credit counseling organizations were so significant, it led to criticism of the entire industry. The primary consumer concern being that credit counseling services were actually working for the creditors benefit more than the client who they represented.

Another common criticism of credit counseling services is the assertion that participation may ruin a consumer’s credit or credit score. Fair Isaac Corporation, the company that pioneered the use of credit scores, states that participation in a credit counseling service has no effect on a consumer's FICO credit score. However, the participation in such a plan can appear on a consumer credit report, and the client could have more difficulty obtaining a car or home loan, and may be denied any further unsecured credit, such as a credit card.

Are there Debt Relief Alternatives to Credit Counseling?

In the early 2000's, an innovative debt relief industry began to take root. At the time, it had no name, and was managed through an attorney/client model, where a legal representative attempted to engage in a debt settlement process. Over the last decade, this industry has bloomed to what is know as Debt Settlement. Other common names include Debt Negotiation and Debt Arbitration. Debt Settlement is a more powerful debt relief process when compared to credit counseling. For example, debt settlement covers all unsecured debts, where credit counseling focuses primarily only on credit card debt. Debts including personal loans, medical bills, unpaid utilities, repossessed autos, gas cards, retail cards, and other debt not secured by capital, can all be bundled up within a debt settlement service. The primary advantage of debt settlement, is that it actually reduces the amount of debt you must repay your creditor in order to satisfy that debt. Debt settlement often reduces debt to 50% of the original balance, including all late fees. Furthermore, once your debts are repaid, there is no record lingering on your credit report. Debt settlement can resolve debts in a realistic time frame of 2-3 years, compared to 5-6 years through credit counseling, and the total amount repaid to satisfy your debt may be considerably less than through credit counseling.

What does Debt Freedom Tips Recommend?

Sacrifices and a financial "mark" will happen through both credit counseling and debt settlement services. As long as you are going to engage in a debt relief program, you should engage in the one that will do the most for you, and represents you and not your creditors. In our opinion, debt settlement is the superior of these two debt relief service.

Debt Freedom Tips has done its homework, and we have found debt settlement providers who we feel offer a superior debt settlement service. These companies are all certified and accredited to perform debt settlement services. They all have trained and senior debt arbitrators on staff. They all are members of key consumer advocacy groups, such as a Chamber of Commerce, watchdog groups, or the BBB. Finally, we have interview each company, spoken with many of their clients, and have monitored their progress for many years. We are comfortable with providing these referrals to our web visitors seeking professional debt settlement help.

If you would like to receive a free debt settlement quote and consultation, form an approved Debt Settlement company, please visit our Debt Settlement Quote web page.