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Reasons to Avoid Credit Counseling

June 21, 2013 0 comments

by Simi Mira

If you are having troubles with debt then you may be aware of the many advertisements for counseling services. While they tell you, many reasons to use their services the do not highlight why you might want to avoid credit counseling. They highlight that the first step in mitigating a negative situation is to acknowledge there is a problem so that you can try to change the circumstances leading to the problem and in this case debt.

When you start credit counseling you may be locking yourself into a situation that will have a negative impact on your very important credit score. There may be other ways to help your situation, which allow you to avoid credit counseling and the impact on your credit score. If you are not familiar with a credit score, it is a financial rating is used by companies giving loans or credit to customers. A low credit score can see an application refused but more commonly means a much higher interest rate. This can significantly increase your monthly payments.

If you do not avoid credit counseling then when they start negotiate with your creditors it can be noted that you are using a credit counseling service and this may signal to your creditors and future credit providers that you are a higher risk. It may trigger some of your creditors to increase your current interest rates or to lower the credit limits on credit cards.

 

Let us look at some reasons to avoid credit counseling that you may not have considered:

  • Credit counseling services charge fees and these fees are payable no matter how favorable an outcome they have been able to help you negotiate. If they have reduced you monthly repayments by only a few dollars then that would count as a favorable outcome without you being in a better overall position. In some cases, the monthly fee for the service will be significantly more than the savings you have achieved making your position even more difficult.
  • The main tool of many services is to put together a budget that can be very difficult to stick with. They rarely leave any savings provisions and only include the basics like food, utilities, rent and vehicle expenses. It becomes increasingly difficult to stay with a budget that does not include a small amount to allow some enjoyment of life.
  • The success rate is very low. In many of these counseling programs the highest priority is to sign up people and process them as fast as possible to start earning there fees. The structure is very rigid and the solution does not take into account other possible pathways. The proposition is sold to the participants as a solution to all of their credit problems but rarely is and so the participants drop out.
  • Creditors may take your using of a credit counseling service as an indication that you are in financial difficulty. This may trigger increases in interest rates, moves to repossess items or the forcing of a bankruptcy petition.

 

It is clear that you should avoid credit counseling until you are certain that you are fully informed about the negative aspects that are possible and that they will not apply to you.


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