Back in the 50’s, the credit card industry got together to come up with a plan to cope with all of the people filing record numbers of bankruptcies. They were getting stiffed left and right, and they came up with Credit Counseling. After creating the idea, they lobbied to Congress to get the non-profit status for Consumer Credit Counseling (also known as Debt Consolidation, Debt Management Plans, etc.)

Thus Credit Counseling is an option that exists today. It was deregulated a little over a decade ago and now you’ve got private companies, non-profit, and for-profit companies popping up all over. They are subsidized by the credit card companies themselves so they’ve got some pretty good advertising power out there. You’ll see commercials, billboards, and ads all over the internet.

And what is Credit Counseling? Credit Counseling is a program that you enroll into where you can get your interest rates reduced and lowered. Any Credit Counselor can reach basically the same agreements with creditors to reduce interest rates for folks that are enrolled into the program to a certain amount (that amount usually averages to about ten to twelve percent). So, if you have interest rates that are over ten to twelve percent then you could save money by enrolling in Credit Counseling.

Let’s say you have $40,000 in credit card debt like my average client does, and you’re paying 20% in interest, looking at a long road of 60 to 70 years to pay it off with minimum payments (eventually paying back two to three times what you owe with the interest on top.)

Credit Counseling is a much more attractive option. You’re only going to pay back about 50% of what you owe in interest. So you’re looking at a total cost of about $60,000 instead of a couple hundred grand or more. Instead of 60 years or more to get out of debt, Credit Counseling is usually going to be somewhere between four to seven years. Your payments are typically about the same as your minimum monthly payments are now (depending on if you’re making high payments or low payments relative to your debt amount.)

So – Credit Counseling: You reduce the interest that you’re paying. Now, if you’re paying interest below ten to twelve percent on average, then Credit Counseling is probably not going to be of any benefit to you. Another thing about Credit Counseling is that you do pay back 100 percent of your balance. Those are the main economic factors.

Again, this option was created by the credit card industry because they wanted a way to get their share of money from people before they filed bankruptcy. This is why lenders refer to Credit Counseling as a ‘Walking Bankruptcy”

It was designed because they noticed when most people were having problems they would usually pay off one creditor, then file bankruptcy and stiff the rest. Instead, they wanted to enroll people into this program where one payment would be distributed to all the creditors evenly. Every creditor wins and gets more money in case the program fails and bankruptcy ensues.

From the money that is collected through Credit Counseling on behalf of the creditors, the creditors give the Credit Counseling agency a kick back known as “Fair Share”. If you look at the big picture, you’ll find it’s not actually a non-profit set up; somebody’s making a whole bunch of profit! 10-12% interest on average is a great return on investment. And that’s what these Credit Card Companies are getting through these programs.

One thing that we’ve seen in the past year or two is a big crack down on the non-profit status of Credit Counseling agencies. The IRS around a year ago revoked forty percent of all Credit Counselors non-profit status. There’s somewhere around 88 new audits; they’re doing an investigation on the whole industry; and from my perspective it’s pretty much crumbling away.

Why? A couple of reasons:

One is they solicit donations, they go under the banner of being a non-profit, but in all reality they are making a ton of money and it’s just not true.

Another half truth or lie that I see from the Credit Counseling industry and the credit bureaus is with your credit; if you go to the credit bureaus’ websites, or if you ask a Credit Counselor they’ll often say Credit Counseling will not affect your credit rating. This is true, your score will remain intact but all accounts enrolled in credit counseling will be marked as such on your credit report.  This looks to lenders like you’ve gotten to a point of debt that was un-manageable and you’re close to bankruptcy if you fail in your Credit Counseling program.

Again, back to the difference between credit rating and credit worthiness, Credit Counseling has a huge negative impact on your credit worthiness. It’s like a big red ‘X’ on top of your three legged stool and it lasts for as long as you’re in the program, usually between four to seven years.

Credit Counseling may be a good option for you because you can get out of debt much quicker than minimum payments and you can save a lot of money with reduced interest rates. You definitely need to get into a good program, and work with a good Credit Counselor, a for-profit company.

So, don’t be fooled. Make sure you keep all of these factors in mind when making your choice on how to deal with your debt.

Often times Credit Counseling is the best option for people if they do not qualify for anything else, or they don’t have a way to simply pay off their debt.

Credit Counseling (Free Counseling & Quotes)
NOTE: This consultation is NOT with Jesse, but with a debt counselor who’s accountable to Jesse.

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Here To Be An Asset To You,

Jesse Niesen
DebtGoToGuy.com