Credit counseling provides consumers with guidance on consumer credit, money management, debt management, and budgeting. The goal of most credit counseling is to help a debtor avoid bankruptcy if they find themselves struggling with debt repayment. These programs were designed in conjunction with the credit card companies to help consumers reduced the interest on those credit cards that are accepted into the program. These program do not lower the balances on your credit cards, but because the interest rates are lower, more of your payments are applied to your principal balance. The average credit counseling program is paid over a period of 5 years.

You should be aware that credit counseling programs are paid by the credit card companies, which can present a potential conflict of interest. You benefit most from enrolling in a Credit Counseling Program if you have high interest debts with creditors that offer a lower interest rate for accounts enrolled in the program. While some creditors do participate in Credit Counseling Programs, many do not. Assuming your accounts are eligible, you need to compare your current interest rate and what your rate will be in the Credit Counseling Program. If you have high interest rates that can be reduced dramatically, then the program will help you get out of debt faster and save money.

If you have multiple high interest rates cards and limited income, you may not be able to qualify for a Credit Counseling Program. If you need to use your credit cards, this may not be a good option as you will have to close all your credit cards accounts. Its is estimated that about 25% of consumers that enroll in a Credit Counseling Program successfully complete the program.

Consumers who need to finance a car during the program, be prepared to pay a very high interest rate. It is possible that you won’t qualify for a loan at all. The credit impact could also affect your ability to refinance a home loan, qualify for a home purchase loan, or even rent an apartment. If your credit report reflects that you have paid creditors as agreed in the past, the program could have a negative impact on a creditworthiness decision by a potential creditor, landlord, or employer because it is an indicator that you are or have experienced financial difficulties.