Credit counseling services sound like the perfect way to get out of debt, but are they? Read on to learn about the pros and cons of credit counseling, and then you can decide.

Understanding Credit Counseling
You’ve probably seen lots of commercials and websites touting the benefits of using credit counseling agencies to get out of debt, and probably just as many warning against the very same thing. Who are you to believe? Perhaps a bit of both. You see, credit counseling does have its advantages, but it also has its disadvantages. Which side will win for you? Consider the following list of pros and cons to decide:

Pros

• Can help you to negotiate better terms with your creditors.
• May reduce your interest rates on existing debt.
• May reduce your monthly debt repayment obligation.
• May help to get creditors to drop fees.
• Often results in one monthly payment to the counseling agency instead of one to each creditor.
• Can speed up your debt repayment.
• Can help you to develop a workable budget.
• May help to keep you motivated in your repayment.
• May provide education on responsible credit use.
• Can help you to avoid bankruptcy.

Cons

• Credit counseling can appear on your credit report as a negative, and remain there for up to seven years—just like bankruptcy.
• Creditors can report that your account hasn’t been paid as agreed, even if you’ve negotiated new terms and stuck with them.
• Once you enter a debt repayment agreement, you won’t be able to make new charges on your existing accounts.
• Counseling makes it hard for you to qualify for new credit.
• Credit counseling firms can charge high fees and interest for their services, even if they advertise that they are non-profit.
• There’s no guarantee that the counseling agency will make payments to your creditors on time.
• Not all credit counseling companies operate in the consumer’s best interest—and may push costly consolidation loans instead of negotiating with your creditors.