Consumer Credit Counseling Services (CCCS)
Consumer credit counseling can be a good debt relief option for some individuals, but it is important to make sure it’s an appropriate debt relief option for you before signing onto a program.
In a consumer credit counseling program, you will repay 100% of your outstanding debt, plus interest. Agencies typically lower your interest rate to a set rate defined by your creditors. The creditors themselves, not the credit counseling agencies, determine the interest rates and payment amounts. You then send a monthly payment to the agency, which organizes and distributes your payment to your creditors.
It is interesting to note that nonprofit credit counseling agencies have historically received the majority of their funding from creditors. It can be argued that it’s their job to coach you into repaying as much of your debt back as possible.
Consumer credit counseling has a 75% dropout rate*. That means only 25% of people who sign up with an agency tend to stay with the program until they are completely debt free. While some people choose to drop out and repay the remaining debts themselves, this high dropout rate is also caused by debtors with overwhelming debt who believe a consolidated monthly payment at a lower interest rate will get them out of debt. It will for some people, but doesn’t always work for people with overwhelming debt.
People who drop out of consumer credit counseling typically do so because they can no longer keep up with the creditor-approved monthly payments. You can get kicked out of a credit counseling program for missing a payment. Moreover, the law demands that you wait a year before signing up for consumer credit counseling services again, once you leave the program. At that point, the only option for many debtors is bankruptcy.
Consumer credit counseling may take 6 years or longer to complete. Furthermore, your involvement with a credit counseling service could be reflected on your credit report and can stay there for up to 7 years. Make sure this is the right debt relief option for you before committing to a consumer credit counseling agency.
* The statistic is derived from the report, "Credit Counseling in Crisis," published by Consumer Federation of America, in conjunction with NCLC, April 2003, page 27: "Most agencies do not release information on their retention rates, although a 1999 NFCC memo cited by Consumer Reports found that just 21% of their clients completed DMPs while about the same percentage left to self-administer debt payments. NFCC now reports completion rates of about 26% with about 20% leaving for self-administration."
