Credit Card Debt Management

Technically, credit counseling indicates a company that is trying to help consumers repay debt through careful management of financial resources and a change in past financial habits. However, the term has become practically interchangeable over the years with phrases like “debt reduction” or “debt consolidation.” The lines between these three very different services have been blurred into one big $7 billion industry that sometimes puts the consumer first, and sometimes not (depending on who you’re dealing with).

First of all, let’s clear up these misnomers. Debt reduction negotiates on behalf of the consumer to settle debts for one lump sum or at least reduce monthly payments. Debt consolidation, on the other hand, takes the money from the consumer and physically sends it to the creditors and lenders - keeping a chunk as a service fee, of course. The heftiness of that chunk varies greatly, and both of these services may or may not include education on responsible management of finances and credit. There are many unscrupulous agencies out there offering this “service,” but the warning signs are going to be another topic for another day.

The pros of using these services include:

-The legitimate ones can truly help repair your credit.

-It’s better than bankruptcy.

-Your interest rates or monthly principal payments might be reduced.

The cons of using these services include:

-Not a very strongly regulated industry.

-Can actually hurt the FICO score of consumers with decent credit

-Risk of dealing with unreliable fly-by-night scam artists.