The Pros and Cons of Consumer Credit Counseling Services (CCCS)
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. First, 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 50-70% total. Secondly, 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. Third, 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 $10,000, 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. We recommend considering other options first.