Credit Counseling – Pros and Cons

Credit counseling is an important decision which requires much consideration. Companies, which offer these services, provide individuals with the information they need to better manage their financial assets.

These services also work with individuals to provide debt consolidation and/or negotiation assistance to move individuals to a debt free future. In the short run, however, one's credit rating may suffer in the debt negotiation or consolidation process, so debtors must carefully consider the pros and cons to credit counseling to decide if it is the right financial move.

When you use a credit-counseling service to structure a debt-management plan, the accounts included in that plan are usually noted on your credit report as "not being paid as agreed." These creditors may also report that the payments are being received through a credit-counseling service.

Credit counseling services make the point that being in a debt-management plan shows that you're dedicated to repaying your debts, and that can be considered positive when creditors review your report. While that's true, it will be an uphill battle to qualify for new credit until you get a couple of years of solid repayment history on your credit report.

Credit counseling services help consumers by negotiating with your creditors to agree on a repayment plan, and they may be able to reduce the interest rate on your outstanding balances for accounts in the plan.

Under the Fair Credit Reporting Act, a negative item other than a bankruptcy filing stays on your credit report for seven years from the date it was first reported. That includes the “account not paid as agreed” listing. Bankruptcies stay on your credit report from seven to 10 years depending on the type of bankruptcy and the resolution of the bankruptcy filing.

You'll have a lot of the same credit problems that someone that filed for bankruptcy goes through so you should carefully review your options before committing to any plan of action.