Consumer Credit Counseling – The world’s best sales pitch
March 16th, 2007 by Mark FlandersDid you know that many mortgage lenders view Consumer Credit Counseling as worse than bankruptcy? It’s true. Getting a mortgage loan approval for a client who has a bankruptcy is easier than getting an approval for a client who has been in a Consumer Credit Counseling program.
The revolving debt nightmare is faced by many Americans everyday. An entire industry has developed because of it. As with any industry, there are some good companies, many mediocre companies and too many very poor companies. In this industry, the mediocre and poor companies can make a bad situation significantly worse. The impact of this mediocrity shows up on your credit report. While you believe all your credit problems are under control, the reality is often quite different.
THE PITCH – When you see commercials for consumer credit counseling, the sales pitch is amazing. “Consolidate your bills into one low monthly payment!” “Never worry that this credit card bill can’t be paid or that other payment will be late.” They promise that you will make one affordable payment to the credit counseling service, and they will divert the funds to all of your creditors as necessary to keep everyone satisfied. You will have no more bill collectors calling you daily, hounding you for payment. Is it to good to be true? Should you consider other alternatives? What are the alternatives?
WHAT HAPPENS – The way a credit counseling service consolidates your bills can actually be more damaging than helpful. Initially, the service will have you collect information on all of the bills you wish to consolidate. You turn this information over to them. They will request information on your income and help come up with a monthly payment that you can afford. They will then contact your creditors, inform them of the consolidation, and set up slow payments. This will get the bill collectors off your back and usually stop compounding of interest on accounts, but it can also affect your credit. Also, rolled into this payment is a fee for the service that the consumer credit counseling service keeps for itself.
REALITY CHECK ON YOUR CREDIT – Understand that, if you allow the counseling service to “slow pay” your creditors, your credit score will be reduced, and your credit report will be severely tarnished. While you will live more comfortably, knowing that all creditors are receiving payments, no one is hounding you for money, and you can afford your monthly payment, your creditors are reporting you as either a “charge off” or a “slow pay” to the credit bureaus. A charge off is the worst rating you can have on a credit line. Slow pays show up as current activity while you are in credit counseling. This information is rarely disclosed by Consumer Credit Counselors.
This article may be disturbing if you have been considering Consumer Credit Counseling. The point of the article is not to cause you concern, it is simply to make sure you are informed. There are other solutions to the debt trap. Consumer Credit Counseling is just one of the possible solutions. It is by far, in my opinion, the most heavily adveritsed solution.
You can find alternative solutions on this site as the site develops. These alternatives will all be in the Credit category that you can jump to from the sidebar.
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Ines, they are not all bad. The good ones do exactly what they say they will. Unfortunately, most don’t seem to. I’ve never heard of a CCC company that removes the derogatory items.
I’m feeling better almost every day. I think I’m over the hump. Doc says to expect 3 to 6 months for a total recovery.
We have a good friend that has a Consumer Credit Counseling Company and I had no idea how it worked. I had a completely different concept, that of the CC Company negotiating a payoff of the credit cards and removing all blemishes from the report. Man was I wrong! I’m going to sit my buddy down and ask him for details.
How are you feeling?
Mark, I totally agree with Tony…. this is something that is extremely important in which is not talked about often. In all honesty, I haven’t even thought about it much, but it can be an alarming concern. I had a client give up $500, when he was promised that a few collections were going to be removed. Well, that never happened.
You did a great job with this article. jeff
Sounds good to me, when?
Thanks Tony. Maybe we should get a collaboration going on ideas. I run out of them at different times.
Another great post Buckwheat! This is important information consumers need to know.
FYI – You keep beating me to the punch writing about subjects near and dear to originators hearts. However after reading your posts, I know you wrote it better than I could have.
Keep the great posts coming!
Tony Gallegos @ Mortgage Cicerone