I am often asked, “Will debt consolidation companies help or hurt my credit?”   

These companies can hurt your credit in several ways.  First, when a client uses a debt consolidation or “credit counseling” company, the creditors usually put a note on the client’s credit report which states that the account is being handled by a credit counseling company. This damages their chances of getting a good loan greatly.  Second, when a client of a credit counseling company sends their money in to the company for their bills and the credit counseling company almost never pays the creditors on time.  These late payments are then reported on the client’s credit report as well, causing a significant score drop. 

 

 

Clients of credit counseling companies usually pay more for their debt by the time the process is complete. I can actually give you a really good example of this.  A family member of a HOPE client joined a credit counseling program to consolidate and lower 2 of her credit card bills about 5 years ago.  She owed around $6,000 between the 2 credit card accounts.  The credit counseling agency consolidated and lowered her monthly payments to $174 for both cards.  She paid that $174 for 60 months (5 years) and wound up paying $10,440 to pay off the 2 accounts and to pay the credit counseling agency for their services.  HOPE could have probably negotiated those 2 accounts out for her at $2,000 – $3,000 total.  

Credit counseling companies, whether they be non-profit or for profit (as most of them are), only serve to make the situation worse for most people. Debt consolidation can be so damaging to a person’s credit report that we always advise our clients to try other means of debt management.  HOPE can assist you in finding these other means and walking you through the steps necessary to improve your credit situation.