Recently I was asked what I thought about using a credit counseling service. Although I’ve never used a credit counseling service (no matter how many times it was suggested by my significant other) I have a pretty good understanding of the process – and some strong opinions too.

At first glance, the idea behind credit counseling is a good one. A consumer who is struggling with debt can work with a credit counselor to renegotiate their bills, often times reducing the amount of money they owe. Counselors can also setup affordable payment plans for consumers, making it easier to pay back the money owed. Creditors often agree to work with these credit counseling companies because they recognize the value these services provide. While banks and merchants dislike negotiating their debts with a consumer credit counselor, it’s better than not being paid at all.

Unfortunately, consumer credit counseling isn’t about consumers – it’s about profits. Most consumer credit counselors aren’t interested in helping out normal people – the focus is on making money. The whole process has turned into one big scam, where credit “counselors” are often more interested in profiting from a consumer’s debt rather than helping them. In fact, quite a few of these programs are operated by the lenders themselves (and therefore they aren’t very helpful). Not to mention the fact that after you complete one of these so called “credit counseling programs,” most lenders will not touch you with a ten foot pole.

Lenders aren’t interested in granting loans to people that have worked with credit counselors, and for good reason. When you work with one of these “credit counseling services”, you’ve allowed someone else to tell you how much you should repay your creditors without trying to work out a settlement plan with your creditors directly. Credit counselors profit on the difference between what you pay them and what they can get your debtors to accept. For example: You owe Visa $500, but your credit counselor says they can get Visa to settle for $300. The counselor then gets Visa to settle for less than you agreed to pay – let’s say $250. The credit counseling company then pockets the difference without your knowledge.

The net result of credit counseling is that your credit is still damaged, your creditors aren’t happy with the money they’ve received, and only the credit counselors have made money.

If you are faced with a tough situation and you’re considering credit counseling, take a few moments to learn about credit collection laws. Most people never take time to find out what they can do to stop the phone calls and letters, and that can drive people to make a bad decision (like joining a credit counseling program). After you learn about your rights, contact your creditors by mail (return receipt requested) and let them know what the situation is. Explain to them how you are planning on paying them back. Ask them for their help. Don’t threaten your creditors with bankruptcy – just tell them you want to repay the debt as fast as possible. Ask them for help with interest rates, late fees, and reducing the total. Ask them what types of payment plans they offer for people who have fallen on hard times. Also, if you’ve fallen on hard times due to a medical illness or a natural disaster. let your debtors know and offer to send them proof. You may find that your creditors are more accommodating than you might think.

Skip the credit counseling agency or debt repayment plan and work out a deal with your creditors on your own. Don’t let the middle man profit from your misfortune.