How does CCCS compare to Debt Settlement?
In every case, debt settlement will save you money over credit counseling.
What is Consumer Credit Counseling?
Consumer credit counseling organizations were originally set up by an association of consumer credit card companies to assist individuals who are getting behind in their credit card payments. Consumer credit counseling services allow you to make one monthly payment to them and they pay your credit cards directly.
Pros of Consumer Credit Counseling
The benefits are that the payment you make to them may be less than what you currently owe each month, and in some cases they can reduce interest rates, negotiate extensions or forgive late fees.
Cons of Consumer Credit Counseling
There are, however, disadvantages to consumer credit counseling services.
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You will pay considerably more in a consumer credit counseling plan than a debt settlement plan (CCCS plans require you to 100% plus interest, whereas in a debt settlement plan you may pay 50-65% total).
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Consumer credit counseling programs look bad on your credit. Ask any mortgage broker, banker or finance person and they will tell you that consumer credit counseling programs look just as bad on your credit as a bankruptcy.
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The monthly payments to them are often difficult to make. They require that you take your income from your pay stub, subtract your monthly living expenses (which they agree are reasonable) --whatever is left over is your payment. They generally do not allow much room for miscellaneous monthly expenses, such as unexpected car repairs. Under a program like this, you will be strapped for cash for the next 3 to 5 years and you will receive virtually no benefit on your credit report.
The Optimal Candidate for Consumer Credit Counseling
Consumer credit counseling services work best when you have debt of less than $40,000, and you have verified from third party references that you are dealing with a reputable company. With this amount of debt, you can get through the plan fairly quickly. In most circumstances, we recommend people consider other options first.
The Non-Profit Myth
Debt happens. As credit card issuers make it easier and easier to get credit, personal debt is mounting nationwide. There are many organizations to help you get out of it.
Most of these "credit counselors" bill themselves as non-profit organizations. Although this may make you feel cozy, you should know who your advice comes from.
The credit counseling industry was initially formed and backed by an association of credit card companies. They were frustrated with borrowers who would not return their phone calls, so they created an organization where these consumers would walk right in the front door.
Although yes, they may technically be non-profit organizations, you should know that they receive a percentage of every dollar they collect for the credit card industry. Because these organizations are largely funded by the credit card industry, some customers have nicknamed CCCS the "Credit Card Collection Service."
Conflicts of interest are unbecoming, especially when it comes to consumer credit counseling. Please take a look at an article in the Washington Post, and a recent report by the Consumer Federation of America and the National Consumer Law Center detailing the abuses.
Here are a few quotes from the article:
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“The report faulted the IRS and state regulatory agencies for allowing ”unscrupulous counseling agencies to grow and prosper” by claiming nonprofit status to take advantage of many of the estimated 9 million Americans who contact a credit counseling agency every year.”
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“But it said some firms engage in deceptive practices, charge excessive fees, abuse their nonprofit status and give improper advice. The result, it found, has been a sharp rise in consumer complaints, with 1,480 complaints received by the Better Business Bureau last year, compared with 261 complaints in 1998.”
