You may not need credit counselling if you are able to pay your bills. On the other hand, if you can’t pay the minimum on your credit card balances, you are late paying one or more of your bills, or you have been unable to make reasonable repayment plans with your creditors, you may consider the use of a credit counsellor.

✘   Repayment plan may take longer than 5 years 

A credit counsellor may not be able to help you if you are too far in debt. There are limits to how little your creditors will accept in the reduction of payments or interest charges. A typical plan of repayment may take 2 to 4 years to complete. Credit counselling may not be your best option if your repayment plan will take longer than 5 years. 

✘   Must repay all your debts

There are many businesses holding themselves out as credit counsellors. Many are licensed under the same laws that govern collection agents.  Some are “not-for-profit” and are funded by the lenders. Some are privately owned.  Credit counsellors assist debtors to repay all their debts, sometimes at a reduced interest rate. Some credit counsellors also offer training in money management. 

✘   Fees may be a deduction from the payments you make

 A typical credit counsellor will offer you a lower monthly payment than your current payments to all your creditors. The credit counsellor will then negotiate with your creditors to accept a proportionate share of the funds each month until their debt is paid. You will then make a regular monthly payment to the credit counselling company who will in turn transfer payment proportionately to all your creditors. Some of the credit counselling companies may take their fees as a deduction from the payments you make which results in a longer payout for your creditors. 

✘   No legal protection from your creditors

A major problem with this approach is your creditors do not have to co-operate. Any creditor can say, “No.” Even if all the rest of your creditors say, “Yes” any creditor still has the right to attempt other collection methods, and even go to Court to obtain a Judgement against you. Credit counsellors offer no legal protection from your creditors.

✘   Negative effect on your Credit Score 

Credit counselling will negatively affect your credit score. When you fall behind in your bills and pay late, your credit score will suffer.

✘   Possible Fraud

Be warned!  There are credit counselling companies and / or counsellors whose sole purpose is to take advantage of you. Be careful. These counsellors are not usually licensed. You should investigate the company carefully before you sign up. 

Some things to be cautious about are:

✘   The credit counsellor has no formal training or accreditation. 

✘   The credit counsellor makes a request for large upfront fees from you. 

✘   The credit counsellor makes unrealistic promises about settling debts for little or no money. 

✘   The credit counsellor makes unrealistic promises about improving your credit rating. 

✘   The credit counsellor intends to delay payment to your creditors. 

If in doubt, check it out. If you are not satisfied, move on.