The History of Consumer Credit Counseling

Consumer Credit Counseling companies were first established in the 1980’s when credit card companies began to notice that many people were having problems making their minimum monthly payments. At that time, if a consumer couldn’t afford to pay their entire debt, there were very few options to get financial relief (except for filing bankruptcy) so the credit card companies helped to establish Consumer Credit Counseling (CCC) organizations in order to recover their money from people struggling to make ends meet. Acting as separate organizations from the creditors, they were able to put on a friendly face and claim they were established to help the consumer.

You will find CCC companies labeled as Consumer Credit Counseling, Debt Consolidation, Debt management or “Make Only One Payment” Companies. Many also claim to be non-profit although they all charge you a fee for their service. Besides the nonprofit or not-for-profit Consumer Credit Counseling companies there are also companies that call themselves Debt Consolidation Companies because of the bad reputation of some consumer credit counseling companies. This can be a little misleading because these companies do not make consolidation loans. Consolidation, in this case, refers to the act of “consolidating” your many payments into the one payment you pay to their company—just like any other CCC company.

The main function of Consumer Credit Counseling is to have you consolidate your debts and pay one payment to them that they then pay to your creditors. A good Consumer Credit Counseling Company will help you by negotiating a lower interest rate and possibly getting late fees waived. In the end though because of their affiliation with the credit card companies, they do not negotiate your balance and most of what they do is for the benefit of the creditor, not the consumer.

So basically these CCC organizations work for the creditors—not you—just like a collection company. In addition to what the creditors pay the CCC company, they charge you a monthly service fee for dispersing your money to your creditors. The creditors pay a commission to the CCC for successfully collecting the debt.

The main pitfall in CCC programs and the main reason for failure in this type of program is that your monthly payments are usually going to be higher than your original minimum monthly payments AND you are going to have to make that payment for many (4-6) years. If you are already having problems making your minimum monthly payments now, how are you going to afford a higher amount over a period of many years? Approximately 65–70% of the people who enter a CCC program are unsuccessful and drop out before the program is complete.

This type of program can be effective for people who want get out of debt and can afford to make slightly higher monthly payments for the next several years and those who do not have too much debt. If you can continue to pay the higher monthly payments and do not foresee future financial problems, this is an O.K. way to go. If you are currently struggling to make minimum monthly payments, however, the odds are not good that you will not succeed using this method.

One of the biggest misconceptions is that enrolling in a CCC program will protect your credit. But any type of debt management/consolidation/settlement/repair program is going to have an impact on your credit. There is no way around it except to make all of your payments in full and on time. When you are accepted into a CCC program your creditors will close your accounts and report this to the credit bureaus. Additionally, nearly all creditors will report to the credit bureaus that you have entered into a “hardship” program and need help. Although this is far less damaging than bankruptcy, it definitely does impact your credit rating—don’t let anyone tell you otherwise!