Credit counseling is rarely in your best interests, but sometimes it does work out. Technically, it’s supposed to help you improve your credit rating, lower your current interest rate, and generally do things you can do yourself. That’s the main problem: credit counseling is something you need not pay a fee for. There are many dangers when it comes to credit counseling. This blog guide goes over them and the alternatives
Not Non-Profit
Just because a company says it’s non-profit does not mean they won’t charge you. Some misconceptions are that credit counseling is cheap, effective, and fast. However, credit counseling agencies do charge fees, do often pay their workers very well, and their main goal is to make money off you. Yes, bankruptcy is not free either, but it’s not in the non-profit sector.
If You Don’t Pay
If you miss a payment via a credit counseling plan, it can severely damage your credit rating. It’s like having two non-payments on your record.
The process is pretty simple: the counseling service will contact your creditors for you, try to get a reduced interest rate and lower payments so you can afford them, and then you pay them directly. But if you miss a payment, you have less legal protection than you would had this been a bankruptcy. If you miss the payment, quite often this will act as a second hit on your credit. We all get into situations where we’ll miss a payment for something, but having no legal protection is dangerous.
Dangers of Scams and Fees
Sometimes credit counseling agencies will try to get you for all they can. They charge you a fee just to be considered, sometimes a very high one. Then they make you pay a separate fee for their services. These are typically scams designed to take your money; you should pay little to nothing to start working with them, and they take any agreed fees after that.
Other Dangers and Bankruptcy
There are many other downfalls for credit counseling. It’s important to remember sometimes it may in fact work for you. Some do successfully rebuild their credit this way. There are many honest and hard-working credit counseling agencies. However, the process itself is much less effective than bankruptcy. With a Chapter 7 discharge, you lose most all your debts. With Chapter 13, you enter into a debt repayment plan protected by law. If you’re a Texas resident considering credit counseling, be weary of this route, and consult with an experienced Texas bankruptcy attorney instead.
