Deciding to Use Credit Counseling for Your Credit Cards

If you’re having trouble with your credit card payments, you may consider using consumer credit counseling to assist you with your payments. Here’s what you need to know about counseling and whether you should make the move.

What is Credit Counseling?

Credit counseling is a program that helps consumers deal with their card payments. Credit counseling is not necessarily all about credit cards. Many credit counseling agencies offer financial management courses, budget help, housing counseling, and pre-bankruptcy counseling.

When you’re having trouble making your payments, credit counselors help you figure out if you’d be able to make your payments under a debt management plan. The DMP is an arrangement with your credit card issuers that lowers your interest rate and minimum payment. If you qualify for a DMP, you’d then begin making a lump-sum payment to the credit counseling agency who would then distribute your payments to your credit card issuer.

Advantages of Credit Counseling

One of the biggest advantages of credit counseling is that it can make your minimum payment easier to manage. If you’re currently making your credit card payments, but you’re struggling to make them, you may feel some comfort after getting on a DMP. Credit counseling agencies are able to lower your minimum payment through arrangements with credit card issuers. If you’ve been trying to get a lower interest rate or minimum payment, but haven’t been able to get your credit card issuers to work with you, a credit counseling agency may be more successful.

If you stick with the credit counseling program, you can pay off your credit card debt within three to five years. This is likely less time than it would take you to pay off your credit card balance on your own.

Disadvantages of Credit Counseling

Unfortunately, not everything about credit counseling is good. While you’re enrolled in a credit counseling program, you won’t be able to use your credit cards. Your credit card issuers will suspend your credit limit until you’ve repaid your credit card balance. Even then, your credit card may be cancelled once you’ve finished the debt management plan.

The credit counseling agency recommends that you not use credit at all when you’re on a DMP. That makes any credit cards that aren’t part of your DMP off limits. You’re advised not to even apply for a credit card as long as you’re in credit counseling.

Lenders may be reluctant to give you new credit cards or loans while you’re on a DMP. Though the DMP doesn’t affect your credit score, it is listed on your credit report that an account is being managed by a credit counseling agency. The lender could take this as a sign that you can’t handle your debt obligations and then turn down your credit application.

Statistics show that not many people who enroll in a credit counseling program actually complete the program. Some people ultimately have to file bankruptcy. Others have deeper spending issues that need to be addressed through social programs. And others pay off debts on their own without a counseling agency.