Be Careful With Credit Counseling Companies

Choosing to pay off debt quickly and inexpensively is not bad in itself

. Consolidating bills into one payment with a lower interest rate can be a good thing.

Many of us may feel that we are unable to get the excessive debt under control on our own. We may choose to use a credit counseling agency or a debt consolidation company to help us handle this stressful situation.

However, not all credit counseling and debt consolidation companies have our best interests at heart. It is important to carefully review the practices and strategies employed by these companies in their efforts to "help" reduce debt.

Credit reports can be damaged

Often times, these companies will use methods that negatively impact our credit scores. For example, although the company may collect the monthly payment, the creditors may not get paid right away.

The credit counseling company will usually collect its fee first. Some will take a small percentage of each monthly payment, while others may want to make sure that their fee is collected as a lump sum and completely paid off before the actual debt reduction part begins. In fact, depending on the contractual agreement, it may take several monthly payments to pay off the debt consolidator.

Then, the money paid to the consolidation company may sit and collect for months until a lump sum settlement offer can be made to one of the creditors on the list. During this time, all of the creditors are usually reporting late payments to the credit bureaus. Once the settlement offer is accepted by the creditor, there will also be an update report issued to the credit bureau indicating that the payment was "settled" for less than the full balance due.

What is our own motive?

Another thing we should consider is our own reason for choosing this route. As mentioned earlier, many of us want someone with more experience to help us make some headway in a time where it seems like we are only spinning our wheels.

But there are others who choose to take advantage of the system. They will use the program to free up space on the credit cards, and, in turn, run the cards back up. I know because I've done it - twice. This does not make things better.

If freeing up credit cards is the intent, then we should not consolidate. If we are seriously looking for a fresh start, we can consider consolidating and having a credit card cutting ceremony. This way, we don't have to worry about running the cards up again.

To make sure that everything is really safe, we might have to cancel one or two of the cards. I used to have my credit card numbers memorized, so I was still able to order new things online and over the phone. If we are not disciplined, we may have to go the extra mile to protect ourselves from ourselves.

The idea of eliminating debt is great. It brings a sense of freedom, and that can be priceless. It can be accomplished with a debt consolidation company, but it can also be done individually. Regardless of the method we choose, as we work toward the end goal, let's be focused and determined so that we don't hinder our own progress.

by: Ozeme J Bonnette

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