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Debt Counseling Services

Credit card debt management and credit card debt counseling services are used interchangeably by debt service organizations. Traditionally these services have offered advice on how to better manage your finances; advice such as transferring high-interest balances to lower interest cards, paying off high interest balances first, classifying debts as secured and unsecured, etc.

In additional to nominal service fees for debt advice, these companies are compensated by helping you consolidate your payments into one monthly payment to them, which they in turn break up and dole out to each of your credit card accounts ideally at favorably negotiated interest rates and lowered monthly minimum payments. That is usually called debt management and is usually performed by a debt counseling agency.

Traditionally the credit card companies have allowed them to withhold a percentage (10-15 percent) for themselves as compensation for working with account holders to assuring their payments are made on time. Supposedly this happens without damage to consumers’ credit ratings. And, it does not really give the consumer a chance to eliminate credit card debt.

The consensus is many of these firms are, in a sense, working for the credit card companies helping to collect your payments. These services have been proliferating, and the credit card companies have been decreasing their “contribution” to these services. If credit card companies don’t put a blemish in a card holder’s credit report for participating in a debt management and a debt counseling program, the card holder still risks credit damage when late payments result from confused payment schedules, or simple administrative ineptitude on the part of the debt management or debt counseling service.

With the new bankruptcy laws of October 2005, people filing for bankruptcy must first receive a “briefing” from an “approved” credit counseling agency before they can proceed with bankruptcy to eliminate credit card debt and other debt.

Some of these debt management and debt counseling services are credible, others are not. Many, with less than ethical business practices, use their non-profit status to make consumers feel comfortable dealing with them. The ultimate test of their credibility and trust-worthiness is not whether they are non-profit, or Christian, etc., but whether they belong to their professional association, the Association of Independent Consumer Credit Counseling Agencies, and run their business in keeping with that association’s standards. Generally that means they do what they say they are going to do, and their fees are reasonable.

Find out how to select a credit counseling agency in the Credit Card Debt Survival Guide.