Should I use a Credit Counseling Service to help me get out of debt?

Years ago, I called a credit counseling service for help with my out of control debt. I was behind in my mortgage payments and the bank was threatening foreclosure.

In a panic, I searched for help. Eventually I found a credit counseling agency. They scheduled a counseling session with me to discuss how their process worked. It took quite a while before they could schedule an appointment with me. By the time I could meet with them, it would have been too late. Fortunately I was able to work out another debt solution.

Your situation may be similar. If you need results quickly, you may not want to work with a credit counseling service. However, as you may already know, besides a credit counseling service, there are other alternatives to Chapter 7 or Chapter 13 bankrupty:

1. Debt Management Service

2. Debt Settlement Service

3. Debt Consolidation

4. Develop your own debt elimination plan.

After evaluating your financial situation, if you decide that using a credit counseling service is your best debt solution, there are a few things you should know before selecting a credit counseling service agency:

How does credit counseling work?

If you're overwhelmed with debt and unable to see your way out, using a credit counseling agency could be a good alternative to bankruptcy. How does it work?

First of all, most credit counseling agencies are non-profit organizations. Some receive donations from foundations and credit industry organizations and others charge a nominal fee for services.

They may even accept "donations" of up to 15% of any payments you make to your creditors to offset their operating expenses.

Generally, their mission is to provide financial counseling to teach you money management skills. They assign you a counselor who usually starts by discussing your financial goals and then they will work with you to develop a budget.

Some may also offer classes to teach you how to manage your income and expenses and maintain a safe level of debt. Depending upon how difficult your debt situation may be, they can also help you to develop a debt management plan to help you plan to payoff your debts.

Many credit counseling agencies are also qualified to issue you a certificate for the counseling and education required by the bankruptcy code if you decide on bankruptcy as your best debt solution.

What are the downsides of using a credit counseling agency?

So a credit counseling agency is not necessarily a bad way to go. However, one downside is you really don't get the benefits that come from learning how to work out your own financial situation yourself.

They do all of the planning and you basically do what they tell you. They may help you develop a budget, but if you don't really learn about how to manage your own money, you could wind up in the same situation later. Also, they may not focus on teaching you how to get completely out of debt.

It can also take up a lot of your time. You usually have to try and schedule monthly appointments to see the credit counselor. Although some may work with you online, after your initial consultation.

These issues may not be deal breakers for you, but just be aware of the downsides.

Another downside is it may initially hurt your credit scores. But this may not be such a big deal if you're already significantly behind in your payments anyway. Also, you can always work on repairing your credit after you've eliminated your debt.

If you decide that credit counseling is your best debt solution, you may want to choose an organization accredited by the National Foundation for Credit Counseling.

They require their member agencies to adhere to some pretty good quality standards for providing credit counseling services.

There are a number of credit counseling service resources and a directory of member agencies listed on their website at

› Credit Counseling Service