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Credit Counseling, or “How You Can Help the Bank While Hurting Yourself”

If you’ve fallen behind in your credit card payments, you have probably heard from your bank, and the representative may have suggested you look into a credit counseling program. The kind bank rep may even have offered to supply a list of credit counseling companies to serve you. But it’s likely the rep didn’t share how much credit counseling companies benefit the bank.

Most credit counseling operations are independent 501(c)3 companies, but exactly how “independent” they are is open to question, since so much of their business comes from referrals from banks like yours. The credit counseling company makes its money by selling you a debt management plan, or DMP. If you enter the program, you make one monthly payment to the credit counselor, who then disburses payments to your creditors. Of course, part of that payment is the fee for the DMP, so you’re essentially paying someone to pay your bills. But what do you get for that fee?

  • Eliminate collection calls — The credit counselor promises that once you’re in the program, your creditors will stop harassing you with collection calls. Of course, that usually takes about 90 days. In the meantime, you’ll still hear your phone ring, perhaps several times a day.
  • Reduce your stress — The counselor promises you peace of mind that comes with knowing you’re in a program that will eventually eliminate your debt. How much peace of mind depends on how your feel about five-year timelines.
  • Avoid bankruptcy — This is the big rub. The counselor will make it seem like declaring bankruptcy is the end of the world, when, for many debtors, it’s a new birth of freedom. Bankruptcy is often a better option for debtors who have dischargeable debt. Whether you choose Chapter 7 liquidation or a repayment plan under Chapter 13, a large amount of what you owe will be forgiven. On the other hand, you could complete your DMP and still have debt left over.
  • Lower interest rates and late-fee forgiveness — This is a clear, tangible benefit, but you don’t have to purchase a DMP to negotiate these benefits with your bank. Banks are happy to make this slight concession when they suspect you may declare bankruptcy and have most of your credit card debt discharged. In other words, they’ll pay you a little to keep you paying them a lot.

If you’re struggling with debt, you should make a manageable plan to free yourself as quickly as possible. For many consumers, bankruptcy is the answer. At DebtStoppers, our Atlanta attorneys provide knowledgeable assistance, explaining all the pros and cons of a bankruptcy filing, so you can be confident you’re making the best decision. For a free consultation, call DebtStoppers today at 678-673-2142 or contact our office online.