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Credit Counseling

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Credit Counseling is probably the best known option for people seeking debt relief, having been around for over 15 years. The service was originally provided to consumers by non–profit organizations like The National Foundation for Credit Counseling and its affiliates, Consumer Credit Counseling Services. Non-profit status notwithstanding, the credit counselors are backed by and receive compensation from the credit card companies.


Enrolling in a credit counseling program entails making a single payment directly to the counseling agency, which is then distributed to each of the enrolled creditors on the behalf of the consumer. Credit counseling does not result in principle reductions, only the reduction of the overall interest rate on the debt involved in the plan. Because these interest rate cuts can be incremental in nature, the fees charged on debt in the program can actually result in higher payments for the consumer.


With an average length of these programs running between 4-7 years, no principal reductions, and minimal savings on interest charges the popularity of debt counseling has waned in recent years. In comparison to other debt relief solutions the only real advantage offered in counseling is that a consumer’s credit score doesn’t take as big of a hit as the other debt solutions. Still, a consumer in a debt counseling program will have a very difficult time getting any type of credit card or mortgage.  Consumers that had been enrolled in debt counseling programs are switching over to debt settlement or dropping the process completely in increasing numbers. In fact, the dropout rate for credit counseling is now 75%. (Source - "Credit Counseling in Crisis," published by Consumer Federation of America).

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