Credit Repair Counseling

Many consumers sing the praises of credit repair counseling services. These consumers have successfully completed their assigned programs and have gotten their debt burden under control, raised their credit scores, and enjoy financial freedoms they only dreamed of before.

In spite of many stories with happy endings, credit repair counseling services are not without their criticisms. Consumers seeking assistance from these services will probably be happier with the outcome if they understand there are both pros and cons to the issue.

The pros are that well-trained financial counselors will assist consumers on a personalized, individual basis to overcome financial hardships caused by overwhelming debt. This debt relief will be done in an informed, disciplined way with the consumer gaining a financial education along the way while establishing sound financial decision-making habits.

The cons are many.

Critics say many people providing these credit repair counseling services aren’t always adequately trained as financial counselors. That they know nothing more than the basic training they received after landing their jobs. This is, no doubt, true in some cases but not in every case.

Another criticism is that these services are little more than a debt-collection strategy funded by creditors trying to collect money from delinquent consumers. It’s true the credit repair counseling provided by nonprofit services are paid for by the creditors, who pay the counseling service a percentage of the monies collected. These services are often free to the troubled consumer but they do require funding or they’d go out of business. Fees creditors pay to counseling services are generally just 4% to 10% of the amount paid by the consumer.

With funding coming from the creditors, not the consumers, some critics say counselors take a biased interest in the creditors at the expense of the consumers. The consumer credit counseling industry says it does not take sides but chooses instead to fairly negotiate between the two parties to find solutions that work for the benefit of them both.

Credit repair counseling services that charge consumers for their assistance actively lobby members of Congress to eliminate the nonprofit counseling services, charging them with not performing their duties in accordance with a charitable institution. The IRS seems to be in favor of eliminating the nonprofit status of credit counseling service providers and actively audits them for discrepancies and irregularities.

Some critics say the debt management plans (DMPs) offered by most credit repair counseling services only hurt the consumer. That participation in the DMP is viewed by credit reporting agencies as a mark against the consumer. The Fair Isaac Corporation, which provides the FICO credit score, the baseline from which the credit reporting agencies derive their proprietary credit scores, says participation in a DMP is irrelevant to its formulations.

Knowing there are two sides to the question of credit repair counseling may help a troubled consumer make a more informed choice to seek help or not. Only the individual consumer can know if the pros outweigh the cons for his or her individual situation.