Consumer Credit
Counseling Services (CCCS)
What is Consumer Credit Counseling?
A consumer credit counseling agency is typically a non-profit organization that is designed to help consumers with their debt through a debt management plan or with debt consolidation. Non-profit agencies are also supposed to provide credit or debt counseling to educate their clients on budgeting and other financial issues.
Consumer credit counseling can be a good debt relief option for some individuals, but as with any debt relief option, it is important to make sure it's an option for you before signing onto a program.
In a consumer credit counseling program, you will typically pay:
- 100% of your outstanding debt
- 100% of the interest (at a reduced rate)
- A set interest rate defined by your creditors
The creditors themselves, not the credit counseling agencies, typically 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 pursuant to your debt management plan.
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.
Is Consumer Credit Counseling Right for Me?
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 cannot afford a consolidated monthly payment at a lower interest rate. 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. Make sure this is the right debt relief option for you before committing to a consumer credit counseling agency.
How Consumer Credit Counseling compares to Debt Shield's Debt Settlement Program
Consumer credit counseling and debt settlement are two different approaches to debt relief. People who are struggling with debt may find the help they need with either credit counseling or debt settlement, but most people are not qualified for both.
If you have overwhelming credit card debt and are unable to keep up with your monthly payments, debt settlement may be right for you. However, if you need help learning how to budget and organize your debts and would benefit from a reduced interest rate, credit counseling may provide the help you need.
Here are a few differences between consumer credit counseling and Debt Shield's debt settlement program:
| Consumer Credit Counseling | Debt Shield's Debt Settlement Program |
|---|---|
| Pay back 100% of the outstanding balance and 100% of the interest (at a reduced rate) | Designed to repay less than the entire balance owed at the time of settlement |
| Creditors usually determine the interest rate for credit counseling consumers | Debt Shield negotiates with creditors with a goal of settling debts for less than the entire outstanding balance - including interest and fees |
| You can be dropped from some consumer credit counseling programs for missing a payment | Our client-centered approach means that we customize a flexible payment plan to meet our clients' financial needs |
| Once you leave a consumer credit counseling debt management plan you must wait at least one year before signing back up | Debt Shield works with our clients to create a budget and design a program with a goal of settling their enrolled debts in less time than a debt management plan. |
What You Can Expect with a CCC Agency DMP
While every company is different, here is a little information about what you can expect when you sign up with a consumer credit counseling agency. Credit counselors should:
- Look over all your financial documents, including payroll slips, monthly bills, checking account statements, mortgage statements, and tax forms.
- Ask you about your living expenses and financial situation as part of their credit or debt counseling.
- Help you determine how much of your debt you can afford to repay each month.
- Contact your creditors to try to secure a lower interest rate or better terms.
- Send you a single bill each month, which goes to paying off your debts as efficiently as possible, putting all the money beyond the minimum payments toward paying off the highest interest debts first.
- Help you to set up and stick to a budget each month through credit or debt management plan counseling.
Be wary of consumer credit counselors who offer you big savings without understanding your financial situation. There is a limit to what these agencies can do and logically there should be a limit to what they can promise.
For professional help regarding debt settlement, get your free no obligation consultation with a Debt Shield consultant today.
* 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."
