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What is Consumer Credit Counseling?

Jan 18, 2008
There are times when consumers need help with their debt. While there are many ways to get help, one of the most effective is to use consumer credit counseling services. These organizations and agencies can go by different names. You may hear of them as debt consolidation or debt management companies.

These types of consumer debt agencies and companies have been around since the early 80's when banking laws changed and credit card debt soon after became far easier to accumulate. Because so many people were getting so far into debt and were having problems meeting even the minimum payment requirements, the banks began to take some action.

Back then the only real course of action for indebted consumers was to file for bankruptcy. This was bad news for both the consumers and the banks. As an option to bankruptcy, the banks helped to establish and fund consumer credit counseling organizations. By doing this, they were able to recover their money as well as help out those who were in financial trouble.

Over the course of time, two types of consumer credit counseling companies have come about. One is the non-profit type organizations that help consumers to make budgets and to communicate with lenders. The other type is a for-profit enterprise that can do budgets as well but they usually offer more in the way of actually dealing with the debt problem.

It is not uncommon for consumers to become confused when they are looking for help with their debt issues. It is also become more common for consumers to get ripped off by bogus credit counseling companies, which makes it imperative that consumers investigate a company before they sign on with one.

Before signing on with any company, you should spend some time thinking about what it is that you need from the company. If you are looking for a debt consolidation loan, you would do much better to work with lenders who offer those types of loans. In some cases, this can mean your local bank or some other highly reputable lender.

If you are a consumer who has too many credit bills coming at the end of the month and you are constantly falling behind with your payments, you may not be able to get a debt consolidation loan and your better choice might be to work with a company that can help you get better interest rates from your creditors or perhaps better payment terms with the companies. As you can see, these are two different approaches, requiring the skills of two different type companies.

It is unfortunate but there are some companies out there who tout themselves as credit counselors or credit repair companies who are in the business not to help you but to make a profit off of you. Some of these companies want you to pay a high advance fee before they will do anything for you. Others will take the money you send to them for payments and use it for other purposes, which is basically fraud. Yet others will set up debt programs for you which will take decades of payments from you before you reach your goal of being out of debt.

Consumer credit counseling is a good idea for some people who in hardship circumstances, but do exercise caution when approaching companies for help. Be sure to check them out before signing on with any.
About the Author
Peter Kenny is a writer for The Thrifty Scot, please visit us at Cheap Loans and Mortgages
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