Pros and Cons of Credit Counseling

by Valencia Higuera ; Updated July 27, 2017
Working with a credit counseling agency can be painful for some.

If you've had difficulty managing your credit, you may have considered seeking help from credit counseling or debt management agencies. These companies serve as intermediaries between you and your creditors. Credit counseling can help alleviate your debt sooner. But there's also a negative side to this type of service.

Renegotiated Interest Rate and Payment

Credit counseling agencies have relationships with creditors, and they know how to convince them to alter your existing credit card and loan terms. Acquiring a lower interest rate on these debts can significantly reduce the monthly payments. Often, credit counseling agencies are able to negotiate the elimination of interest, which benefits borrowers with rates around 20 or 30 percent.

Debt Management

Along with re-working your current terms and payments, credit counseling agencies take control of your finances so you don't have to concern yourself with making numerous monthly payments. As long as you're signed up for the service, you send one monthly payment to the counseling agency, which in turn disburses payments to each of your creditors. This services benefits consumers unable to manage their debts.

Negative Credit Remark

On a negative note, working with a credit counseling agency can look bad on your credit report. Once your original creditors begin negotiating with a credit counseling agency, they may include a notation on your credit report that reads, "third-party assistance," which indicates the help of a credit counseling agency. Seeking assistance to manage your debt and credit can makes future creditors nervous, and they might deny your request for credit.

Frozen Credit Accounts

Credit counseling agencies strive to help you alleviate your outstanding debts. To accomplish this, they place a hold or freeze on your credit cards while you're signed up. This stops you from accumulating new charges, which can impede your debt-elimination efforts. Freezing accounts can help you get out of debt sooner. However, this feature doesn't benefit you during a real emergency, when you may need to access a credit card.

About the Author

Valencia Higuera is a freelance writer from Chesapeake, Virginia. She has contributed content to print publications and online publications such as Sidestep.com, AOL Travel, Work.com and ABC Loan Guide. Higuera primarily works as a personal finance, travel and medical writer. She holds a Bachelor of Arts degree in English/journalism from Old Dominion University.

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