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Consumer Credit Counseling Services

Last Updated: April 15, 2011

Q. Could you tell me about Consumer Credit Counseling Service, i.e., CCCS. How does it work? I am trying to manage my finances and restore credit. This service seems very workable. However, when the time comes (in the next year or so) that I want to borrow for a home, car, education or healthcare for my son, will my credit be worse from consolidating through such a company?

A. It would really depend on how bad your debt is. It may be the right thing for you but I don't usually recommend Consumer Credit Counseling Service unless someone is deeply in debt. It usually ruins your credit. Let me elaborate.

How CCCS Works

Consumer Credit Counseling Service talks to you to determine how much you can afford to pay each month. Then they negotiate with your creditors, getting them to accept lower monthly payments until all your debts are paid. CCCS will make you sign an agreement to not obtain any more debt until the current debt is paid off. You then make a single monthly payment. I believe the payment is made to CCCS and they pay your creditors.

The problem with this service is that many of your creditors, even though they agree to accept a lower payment, still report you as late to the credit reporting agencies because you are not making the full minimum payment. If they report you late, your credit report may show 30, 60, 90+ day lates - essentially ruining your credit. You will have a good reason for why your credit rating looks this way but it will fall on deaf ears. Creditors don't care why it looks bad; they only care that it is bad. Your future ability to get another loan will be impaired to a certain degree. And don't forget that as long as you're on the CCCS plan, you can't get another loan anyway. You signed an agreement not to incur any new debt at the start of the process, remember?

Alternatives to CCCS

Alternatives to CCCS are about the same as alternatives to a BK. You might want to check out our suggestions.

If you can't make it in CCCS, you may have to file bankruptcy (Chapter 7). This is a drastic option, but it's not the end of the world. Things to keep in mind:

• Getting new credit cards and good car loans will be a lot tougher after a BK.
• If you open up new lines of credit after the bankruptcy (we recommend getting secured credit cards) and maintain PERFECT credit for 4 years you'll be back to "A" rates on mortgages. Banks used to let you get into "A" rates after 2 years, but this has changed. (With VA and FHA loans, they may allow you to still get into an "A" loan after 2 years.)
• Why is it easier to get a loan on a home then on a credit card? The creditor gets the home if you default on a mortgage. The issuer of a credit card usually gets nada if you default (even if you don't or can't file a BK).
• You basically can't get a regular loan for three years (6 months to one year to file and have your debts officially dismissed by the courts plus two more years to reestablish your credit).
• It may be tough to get an equity loan on your house until the bankruptcy is off your credit report.

Note: CCCS disagrees with my opinion of their service. Their rebuttal is available to you here.

Consumer Credit Counseling Services - Some Reader Feedback

We don't like to only present one side of the story. CCCS organizations tend to be more helpful and kind then the "professional" debt consolidation firms. Here is some reader feedback:

I wanted to tell you that our experience with CCCS has been very positive. Our counselor always takes our calls and if she isn't there at the time she always returns our calls. She seems very interested in how we our doing and sent us a card when our daughter was born. She is always kind and answers all of our questions. Other people we have talked to at CCCS have also been kind and helpful. Our statements clearly show where every dollar is going.

Before going to a debt consoldiation firm, definitely check with your local CCCS office, which can be found by going to the National Foundation for Credit Counseling, or nfcc,org. They offer other personal financial services other than debt consolidaton like helping you budget.