Debt Relief Options: CCCS Cons

Debt Relief Options: CCCS Cons
  • Creditors often report to the credit bureaus the fact that accounts are enrolled in a CCCS program.
  • Most credit counseling plans assume the entire debt will be paid plus interest charges, and do not negotiate to reduce principal balances.

The Disadvantages of Consumer Credit Counseling

Creditors often report to the credit bureaus the fact that accounts are enrolled in a CCCS program. The bureaus will mark accounts with "managed by credit counseling agency," or some similar notation. However, these account notes have no effect on a consumer’s credit score; as long as the credit counselor pays the creditors on time, the creditors should continue reporting the debts as active trade lines with no delinquent payments or other derogatory notations.

Consumers may find that some lenders are reluctant to extend higher-balance loans, such as a home mortgages and auto loans, to individuals who are currently working with a credit counseling agency. Even though a consumer’s credit score may be protected, many banks view enrollment in a debt management plan as an indicator of financial instability similar to bankruptcy. It would be wise for credit counseling clients to shop with various lenders to find the best loan terms, or, if possible, to hold off on large purchases while in a debt management plan.

Although the reduced interest rates charged under the typical DMP may help lower consumers’ monthly payments, this reduction is often not enough to prevent consumers who are experiencing a severe financial hardship from falling further behind. In fact, some consumers find that they will pay more each month under a DMP than they were paying in minimum payments. This is due to the variability in interest rate reductions amongst various creditors and the fact that most DMPs require debts be paid within a set time period (5 years or less, in most cases). Because the monthly payments required under a DMP are still significant, (frequently around 2.5% of the debt outstanding), credit counseling is best suited for consumers who can afford a substantial monthly payment, but are looking to accelerate the payoff of their high interest credit card debts. It is also important to be aware that many creditors will offer hardship programs directly to the consumer if they contact their lenders and try to negotiate their rates and fees directly.

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