There's an ugly side to Consumer Credit Counseling.  These companies bill themselves as not for profit companies created to help consumers get out of debt.  The truth is considerably different!

Most of us have bought into the banking industries hype that when a consumer gets in trouble with debt, the first stop should be consumer credit counseling.  After all these non-profit organizations only have the consumers best interest at heart.  It's the only non-partial place to get good information about tackling debt - right?  WRONG!

In our current economy, the government refers consumers to CCCS organizations.  Many bloggers here on Active Rain advise clients to call Consumer Credit Counselling if they get in trouble with debt or fall behind on their mortgage.  While there is some educational value to CCCS, in many cases this advise is wrong.

Here's the truth:

Most CCCS companies are indeed set up as not for profit.  What isn't disclosed is that the non-profit company is actually owned by a bank.  In reality most of these companies are set up as 2nd or 3rd tier companies so that they are distanced from the true ownership.

In 2007, when the bankruptcy laws were revised, CCCS became a requirement before a consumer would be allowed to file for bankruptcy.  At a cost of $60 - $90, in addition to Attorneys Fees, the consumer takes an on-line course designed to teach them how to manage money.  MAJOR Red Flag.  The revision to the bankruptcy laws were a direct result of the powerful banking lobby.  Everything about the law benefited banks -including the CCCS requirement.

What Is Consumer Credit Counseling?

• Hardship based program designed to help consumers who can no longer make the minimum payments on their credit cards.
• Once enrolled the interest rate on the debt is lowered, but the principal balance remains the same. 

How Does Consumer Credit Counseling Work?

• A monthly payment is established and an auto-draft is debited from the consumers checking account once a month.  The CCCS controls the money from this point forward.  The monthly payment is usually lower than the current minimum payments, but not dramatically.  In some cases it's higher!
• At this point the consumer loses control of which creditors get paid and which ones don't. Monthly payments get made to some creditors but not all.
• A public notation is made on the consumers credit report showing that they have been enrolled in a consumer credit counseling program.   For all intents and purposes, this public notation acts like a bankruptcy.
• The CCCS is paid a fee by the consumer and it's also paid a fee by the banks it represents. 
• At the onset, the CCCS program length is usually established to be 5 years.  Unfortunately when 5 years arrives the consumer is usually still in debt and the program continues.  The actual program length is usually 7 - 9 years. 

Pros of consumer Credit Counseling

• Financial Education
• It can keep you out of Bankruptcy.

Cons of Consumer Credit Counseling:

• The consumer loses control of their money.
• No new credit can be established when enrolled in a consumer credit counseling company.  That's 7 - 9 years of living without credit - that's a long time.
• The payment is usually higher than what the consumer can afford.
• The failure rate is 70- 80%.  This can be attributed to the length of the program and the high payment doesn't really provide relief.
• Because interest is still being charged, the balances are slow to drop.  Usually, the consumer ends up in more debt, not less.
• You definitely won't be buying a house anytime soon when enrolled in CCCS.

The main reason that people enter consumer credit counseling is because they believe that payments will be made to their creditors.  CCCS is not what it's billed out as.  Think twice before entering such a program.  

Don't be fooled.   At the end of the day, Consumer Credit Counseling benefits the banks, not the consumer. 

I am Kate Bourland.  I help my clients get out of debt, get loan modifications and establish a debt free lifestyle.  We Guarantee our Loan Modifications.    You can reach me at 530-419-3967. 

http://www.katebourland.com

Things to Do In Redding California