WARNINGS About Credit Counseling Programs and Debt Consolidation Plans

In my first article in this series I outlined many benefits you get from working with a credit counseling agency. But there are also drawbacks to enrolling in this form of debt consolidation. And the concerns are not minor, which is why the word WARNING is capitalized.

As with any of the options I focus on in the CRN online debt relief system, considering any debt solution should be weighed by the benefits and drawbacks, set beside what you’re able to afford to commit to.

Many people fail and drop out of credit counseling debt management plans, and direct from the creditor hardship repayment plans. Additional financial pressures that can come along after you start a DMP are certainly a leading cause of having to cancel out of a plan. But over the years that I have been working with people who drop out of credit counseling, I have formed the opinion that about half of them should have never even signed up. Understanding why you may want to avoid a DMP, and a comprehensive understanding of the alternatives available to resolve credit card debt, can help you avoid becoming a debt consolidation plan statistic.

Nonprofit credit agencies are heavily promoted for help managing credit card debt.

Credit counseling is one of the least confrontational ways to get credit card debt relief. It is the safe thing for financial professionals to reference on line, on TV and radio, in print, or in person. The nonprofit debt consolidator helps you pay your full balances back to creditors, which is the right thing to do when that effort does not cause harm to you or your family.

There is also the sense of obligation for paying back debts (more on that later in the credit counseling article series). But blanket encouragement to seek out advice from consumer credit counseling services is, in my opinion, done out of laziness and/or a complete lack of understanding of how the repayment plans are structured with limited application and suitability.

Roughly 70% of people who call in to speak with a credit counselor cannot qualify to be served by a credit counseling agency.

The formula I provided in the first article in this series, and that is repeated a bit differently below, can show you in less than 5 minutes that credit counseling is not a good option for you, or how your budget is a good fit for using a debt consolidation plan to get out of credit card debt.

Mainstream media and financial pro’s waste the time of 70% of consumers they send to a credit counseling company. That waste is also enjoyed, at the same rate, by the credit counselors picking up the phone on the other end.

I can understand why people lean toward credit counseling instead of facing the reality that bankruptcy could be a better option, or that you may have to gut-out dealing with debt collection calls for a while, until you can settle your credit card bills. But I want to help you avoid wasting time and money committing yourself to a debt solution that can be identified upfront as not workable for you.  So… let’s dig into credit counseling program drawbacks.

Missing a payment while working with a nonprofit debt management company.

If you agree to a monthly consolidated payment and start working with a credit counseling agency, but you later are unable to pay on time, you can lose the benefits you get from being enrolled in the plan. I provided a small look into how credit counseling works in the first piece in this series.

After missing a payment to the counseling agency, you may be able to get a creditor to give you a second chance, but not all will. Third chances are very rare. If you lose the lower payment benefit, you may find you are back where you started, but with somewhat lower balances owed on the accounts – depending on how long you were making payments.

If you make your new lower monthly credit card payments in your DMP for any significant period of time, and are suddenly unable to continue, you will have wasted time and money – both are a precious commodity in debt relief.

Wasting months or years in debt consolidation that ultimately does not work can be avoided. 

For example:

You have $20,000.00 in unsecured debts and you are able to get your monthly payment down to $400.00 by enrolling in a credit counseling service. You make payments for 6 months, but then something unexpected occurs preventing you from continuing with the plan. You will have paid $2,400.00 over those 6 months. That money could have been used to help fund one or more negotiated settlements, or more than covered the costs of a chapter 7 bankruptcy filing.

Here is short video about when credit counseling can be, or should be, crossed off a short list of debt solutions:

Enrolling collection accounts with a nonprofit agency.

Depending on how long an account went delinquent before enrolling with the credit counseling service, and whether your account was with a debt buyer at the time you started your DMP, missing a debt management plan payment may mean losing interest rate benefits and having them reapplied retroactively.

I do not advise enrolling charge off credit card debts (typically accounts that are 180 days past due) into a credit counseling service unless, or until, there are more conforming account treatments when accounts are already placed with outside collectors. There are clearer benefits to using debt settlement as a method to resolving debts placed with a collection agency or sold to a debt buyer.

It is also important to know that not all credit counseling agencies train their counselors to understand collection accounts. Credit counselors are certainly not trained to help you understand alternative and creative ways to manage collection accounts at the same time you are dealing with accounts not in collection. This fact leads me to the next warning.

Debt consolidation with a nonprofit counseling agency fits into a box.

Debt management plans are not creative. They fit into four corners and cannot step out. Depending on your perspective, this fact can be seen as a major strength, or a huge weakness. I see it as both.

The limitations on who can budget to repay their debts through a counseling agency make the lines less blurry for you, and for the counselors that pick up the phones at these companies when you call in.

  • A counselor cannot enroll you into a plan when it is obvious you run out of money before you run out of month (income is not enough to cover your monthly expenses and pay back your unsecured debt – like credit cards).
  • This means calling a credit counselor can help you learn whether you qualify for debt consolidation, or can quickly cross it off the list of your available debt relief options.

There is nothing wrong with not qualifying for a debt management plan with a counseling agency. Knowing it won’t work for you means focusing on something that will.

Banks have preset criteria they give to the credit counseling companies who screen your income and budget to fit the lenders standards for payment and interest rate reduction. This is an unfortunate inflexibility.

  • The preset criteria that are programmed into an agencies computer system only allow so much left over money each month.
  • One bank may say they will reduce interest on their credit card to 6% if you have $300 left over after all bills are paid, while another bank won’t lower your interest rate much unless your budget shows you have $150.00 dollars left at the end of the month.

If you are only marginally suited to sign up for a credit counseling services debt management plan, or have a fluctuating monthly income that makes your monthly budget more like guess work, than credit counseling repayment plans may not be right for you. Going ahead with one, when you are only left with something like $100.00 each month after your bills are paid, means you are one flat tire away from failing in the plan.

Should you still speak with a counselor and do a full income and budget analysis? Yes! Why?

  • Its free
  • There may be special reductions available with some of your creditors that you would not have learned about otherwise.
  • There is no other way to get an accurate lower payment quote

With very little time invested, you could learn that credit counseling has solid potential to help you with your debt, or end the call knowing that the option cannot work for you – allowing you to cross it off the short list of debt solutions. You can save yourself (and a credit counselor) the time by using the example I gave in the first article in the credit counseling series to determine if your budget and bills are just too far gone.

The counselor you speak with is pretty much only going to offer details about what a debt management plan will look like for you. They are not allowed to cross into other debt solution territory like bankruptcy and debt settlement. So do not rely on them for feedback on your remaining options if a DMP cannot be offered to you.

Can a credit counseling service help you?

Credit counseling services have worked for millions of people over the years. There are many hundreds of thousands of people succeeding with their debt management plans while you are reading this. All of this detail should help you understand what credit counseling is, how credit counseling works, and whether it is an approach you can use to get relief from your debt. If you reach out to speak with a credit counselor at this point, it should be because you know you can budget between 1.7% and 2.5% of your combined credit card balances (and other unsecured debts), as your new lower monthly payment.

If you are faced with a situation where something has got to give in order for you to resolve your debt, you will find limited options. These options consist of the kinder, gentler, and non confrontational approach of credit counseling, all the way to bankruptcy. A good place to start learning which debt solution can work for you is be speaking with a certified credit counselor.

If you would like to connect with a credit counseling services provider with high standards for customer satisfaction call 888-317-8770 and speak with one now.

If you have questions or concerns about working with a credit counseling service, or are working with one now, post in the comments below for feedback.

In part 3 of the credit counseling series I am going to cover how you can implement your own DIY version of a credit counseling plan. Continue reading the credit counseling series – Banks offer credit card hardship payment plans.


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  1. Paul V says

    The warnings about going with a credit counseling company are good to know. I am pretty sure I can swing the payment if a credit counselor can get my monthly credit card payments lowered in the way you described in the previous article I just read about credit counseling. But what happens if I stop the credit counseling program, not because I cannot pay anymore, but because I want to? Can I still keep making the same payments to my credit cards? I have Bank of America, 2 Chase credit cards, Target, Discover, my gas card I guess is with Citibank, Macys, and the Credit Union Visa I want to keep that I mentioned in the other comment from the page before this one. Do these banks work with a credit counseling service and then work with me like that later if I quit?

    • Michael Bovee says

      Committing to a credit counseling program is something you want to be sure you can manage up front, and it sounds like you can. You are not beholden to the repayment program. You can drop it at anytime. Many do indeed drop from a credit counseling program, and for the 2 reasons you pointed out.

      1. Because something happens that sets you further back financially making it impossible to continue making even the reduced credit card payments through the credit counseling program.
      2. You have bounced back enough financially where you are able to manage better and can pay the remainder of your debts on your own without the help of a credit counseling program.

      If things are moving along just fine, and you can stay on track with the debt management plan, dropping the program is not a problem. You may not be able to maintain the lower interest rates the credit counseling company got for you with Chase, Bank of America, Discover, Target and the rest. But that may not mean much depending on how long you were working with credit counseling. If you were working to pay off the credit cards on the DMP for say 3 years, than the balances on all of these debts will have been paid down quite a bit. Some of the smaller balances you mentioned in your other credit counseling article comment, and this one, like Citi bank and Macys, may even have been paid off by then.

      Credit counseling services help when you need it, until you do not need it, or when you cannot keep up payments and are forced to consider other alternatives.

  2. Paul V says

    Assuming I decide to drop the credit counseling program at a later date, will all my credit cards;Wells Fargo, Bank of America, Citi Bank, and Chase, at least give me back the interest rate I had when I went into the credit counseling program, or will they be able to increase my interest rate above what I had when I went into the program?

    • Michael Bovee says

      I do know of instances where credit card interests rates lowered by working with a credit counseling agency, were increased to a higher interest rate than what the card was at just prior to starting a debt management plan. The most recent example of a file I have worked where this occurred was several years ago, and before the CARD Act went into affect. The Card Act put an end to arbitrary interest rate increases unless you fall behind with a credit card payment by 2 months or more. In other words; Wells Fargo or Chase cannot just wake up one morning, stub a toe on the way to the coffee pot in the kitchen to start the day off wrong, and show up to work and increase credit card interest rates on someone making on time credit card payments to Chase, but late on a payment to Citi Bank by a month. This scenario for increasing credit card interest rates would have been okay prior to the changes brought by the CARD Act.

      If you quit or drop a credit counseling program, and take over payments on your own, it will likely be because you are out of the woods with debt, or have bounced back enough from a financial set back, that it makes sense to stop the DMP. Otherwise, you would stick to the credit counseling plan.

  3. Cami says

    I am under a debt management plan (DMP -National Budget Planners-). Bank of America has been paid by the plan for 15 months. For some reason they have not agreed to the plan; the DMP told me I was allowed to keep one credit card for emergencies, other than that I closed all my accounts. Yet BofA continues to charge $35 / month for late fee and full interest. I have amassed more charges than when I began the DMP. When I call BofA, they won’t talk to me because the account is being handled by a DMP department. When I talk to the DMP they say BofA keeps denying the Plan because I have to close all accounts. I have since closed any accounts that were zero balances after obtaining my credit report (these were old accounts that I did not know were still open and accounts with less than $100 that the PLAN originally said I could just pay off since they were so small). BofA still has not agreed to the PLAN. Meanwhile all 8 other creditors of mine are on the PLAN and over the last 18 months have been cut in half; as an example one card went from $11,000 to $4,800. EXCEPT my BofA card which has increased. I just checked my credit report and BofA has now entered a “charge off” on my record. Do I have any rights to sue? I know they can enter a charge off because the payments the DMP has been paying them is less than the minimum payment but they have been collecting from the DMP, and have refused to speak with me when I call because I have a debt manager. I am always told I have to call my debt manager. I’m feeling like I have no control over this situation.


    • Michael Bovee says

      The DMP you are on with the credit counseling agency, National Budget Planners, is based on voluntary participation. Creditors like Bank of America, Chase, Wells Fargo and others, will all have set criteria for what they approve. BofA has one of the stricter guidelines for disposable income (money left after all bills and living costs are met), and can be obstinate in other ways too.

      What was the balance owed on the account that you left out of the program? What was the balance on your BofA account prior to starting work with the credit counseling company, and what is the balance on that account today?

      Suing BofA is not worth any cost or effort in my opinion.

      The credit counselor did you no favors. My guess is that they did not try all that hard to rectify the DMP acceptance with BofA’s correspondence department. And continuing to pay BofA an amount not agreed upon, while being charged late fees, only to now have the account charged off and placed in BofA’s collection pipeline means the money was pretty much a waste. I am sure you could have come up with more creative uses, like paying down other debt faster.

      At this point I would encourage you to negotiate a settlement with whatever collection outfit gets your account? Have you heard from any debt collector by phone or mail about this account? If not, call BofA and ask who they placed the debt with. Post what you learn and lets go from there.

  4. cecilia says

    I am under a DMP, America Consumer Credit Counseling, we agreed to pay them $340 per month for aproximately 4 years; we are half of the way but not even the smallest credit card is paid off (the original amount was $450.00 and now is $240.00). The original debt total was $11,500.00, but the payments made so far to ACCC add up to $10,500.00. As you said in the article it was a waste of money and effort, now I would like to decline their services and deal with my creditors directly…If you look at all the staments, ACCC sent the payments to the creditos late, besides they took my money on time every single month…What would you recommend I should do????

    • Michael Bovee says

      Post the names of the creditors American Consumer Credit Counseling is sending payments to.

      What is the amount ACCC is taking from your account monthly?

  5. Carolyn says

    I have roughly 6 months to go to finish my debt program. I have paid off over 50,000 dollars which seems like a miracle. It has been hard, I have readjusted payments and unloaded one account owed to B of A who did not accept the terms my program offered. This is because I had already been in a debt program directly with B of A. Therefore going through finishing paying them off with the DMP would have me taking longer than Bof A would agree to.
    At any rate, I find myslef tempted to see if I can negotiate paying the rest of my debt directly with my creditors and take a bit longer to settle my debts. Reason for this is I owe the IRS for a past year’s filing and am afraid I will owe this year as well. I am wondering if this is a practical idea? In hindsight I should have commited bankruptcy. We have ZERO savings. I am 55, have college age kids and the money I would have put aside if out from underneath the debt would have been some kind of savings plus for my kid’s to go to college, our health care, and so on. Is it worth trying to renegotiate now? And the other B of A account is with a collection agency now. I am proud of how much debt I have paid although when I realize over these years I have paid the DM company about 1600 dollars that kind of stinks. Although I understand their negotiations spared me far worse I guess.

    • Michael Bovee says

      I would want to find out what the damage is with the IRS before I stop using the debt management company. You can end your enrollment in the payment program pretty easily. Having worked this hard to pay off what you have, it should be a source of pride, so be sure to contact your creditors and continue with the payments yourself.

      Don’t beat yourself up over not doing the bankruptcy. You may not have qualified for a chapter 7, or may have been forced to liquidate things you would have preferred not.

      What is your plan for the Bank of America account that is now in collections?

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