I worked with credit counseling agencies (often referred to as CCCS) quite a bit when I was in the credit card industry and they do have some benefit BUT I do not recommend CCCS for three reasons:
- It is a form of debt consolidation. You pay CCCS a lump-sum payment and they distribute it to your creditors. This is all well and good as long as you’re able to pay the single large payment to CCCS. However, what if something happens and you can’t pay CCCS one month…or two…or three!? You just missed a payment with ALL of your creditors. Once you’re signed on with CCCS, most creditors won’t take a payment from anyone but them for as long as you’re in their program. OUCH.
- It is a form of debt consolidation (I know I said this once already, but there is a second reason). You are often treating the symptom instead of the problem. It is very common that during any form of debt consolidation, you get a lower overall debt payment by lumping them all together, loosening the tension in your budget just enough so you aren’t focused on the behaviors that will get you out of debt. As a result, you go into debt more deeply – eventually so deep you don’t know what to do.
- Your credit score. While I’m not concerned with making your credit score better, you also shouldn’t be doing anything to purposefully hurt it. I teach that you should behave with money and let your credit score take care of itself. However, I want to mention that enrolling with any CCCS program will show on your credit report as “enrolled in debt management”. This is not ALWAYS a negative thing if you’re already on the verge of bankruptcy, but not a good thing for your credit.
I would prefer you battle each creditor individually and “kill” the debts one at a time (usually tackling them by taking on the smallest balance first, then the next smallest balance, etc…what Dave Ramsey calls the “Debt Snowball”). You may spend a little more in interest and you’ll have to deal with them yourself, but you are taking a MUCH LESS RISKY approach and as you pay off one, then another, then another, those small victories will help you keep the endurance and energy to win.