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Having spent over 10 years as a Financial Adviser and over 11 years as a mortgage banker I can tell you without hesitation or reservation that you should never, ever use a Consumer Credit Counseling Service.
First of all, to a mortgage banker as well as to an institutional lender, when we see that your credit is under third party management it sends a clear and not so subtle message that you are not responsible enough to handle your personal financial matters. Quite frankly, there is nothing that these Consumer Credit Counseling Services do for you that you cannot do for yourself.
When you go and turn over your accounts to a Consumer Credit Counseling Service several things happen to you and your credit report; most of which will not be disclosed to you until it is too late.
- Your accounts have to go to collections! Whether it is the company's internal collections department or a third party debt collector is irrelevant. The account has to be in collections before a Consumer Credit Counseling Service can assist you. If the account is not in collections they will normally cease payments until such time that the account does go into collections. The fact that the account defaulted and went to collections is clearly reported on your tri-merge credit report.
- Once you accounts are in collections the Consumer Credit Counseling Service then "goes to work" and calls your creditors in an attempt to "negotiate" a reduced monthly payment as well as reduce the amount of debt owed. The reality is that most of the Consumer Credit Counseling Services have pre-existing contracts with almost all major creditors that specify how much the original creditor will settle the account for.
- Now the Consumer Credit Counseling Service arranges payments with the creditors and then approaches you with a "lump sum" monthly payment that you have to make including a "small service fee" that they charge you for the privilege of using their services. The fact of the matter is that you can call your own creditors and more often than not negotiate your own reduced payments and save yourself the service fee.
- Now here comes the worst part! The accounts will be reported on your credit report as being under third party management for AS LONG AS IT TAKES to pay off the account. That can be anywhere from three to 10 years and then the account stays on your credit report for another seven years on top of that; all the while reporting that it was a defaulted account that you took to a third party to manage!
As a comparison, look at a bankruptcy. You file the bankruptcy, it is discharged and depending on the type of bankruptcy you opt for and what your exemptions are you can normally not make any payments at all and the bankruptcy comes off of your credit report in ten years, which could be years before your Consumer Credit Counseling accounts would come off.
For example, you use the Consumer Credit Counseling Service and it takes you five years to pay off your accounts. Now add the seven years that the accounts remain on your credit report and you come up with a total of 12 years that you have to deal with these items being on your credit report. With a bankruptcy the accounts would come off in ten years and you probably made no payments as well! Furthermore, under a bankruptcy, most lenders know that you will be unable to file for a bankruptcy again for eight years and thus be more willing to lend credit to you once you show a consistent history of paying your bills on time. On average most of the lenders I worked with would extend credit as soon as 12 to 36 months out of bankruptcy.
I am not saying to file bankruptcy, what I am saying is that you should never use a Consumer Credit Counseling Service. You have options! Declare bankruptcy, seek out the advise of a financial advisor, negotiate your own terms with your creditors or learn how to properly pay off your credit cards. Either way, avoid the Consumer Credit Counseling Services or pay the consequences.
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