Q: Do credit counseling agencies help or hurt your credit? I would love to have the interest on some of my credit cards lowered, but I don’t want to jeopardize my credit. Please advise.
A: First, it’s not the credit counseling agencies themselves that may pose a risk to your credit scores. By the time you need help from one of these nonprofits (and you should use a nonprofit), you’ve probably already hurt your credit.
So, what you are asking is: Does participating in a debt repayment plan set up by a legitimate, nonprofit credit counseling agency hurt your credit score?
The answer is in general, no. But that’s a “no” with a caveat.
If you aren’t careful, and you hook up with a scam agency or a poorly run one, the money you send every month to the agency to forward to your creditors as part of the payment plan could be sent off late. It’s the late payments that can damage your credit even further. In other words, if the agency doesn’t pay the creditors on time, that does, or can, get reported on your credit report.
So, you need to look around carefully and choose the right agency to help you negotiate with creditors to maybe reduce fees and interest rates on your cards. And, I say “maybe” because working with such an agency doesn’t guarantee your interest rates will be lowered. It’s possible that may happen, but not a guarantee.
I should also add that, if you are applying for a loan, the creditor may view your participation in a repayment plan negatively or a sign that you aren’t ready for more debt. Still, if you are desperate to get a handle on your current debt, you shouldn’t be shopping for more credit anyway.
If you are looking for help managing your debt, go to the site of the National Foundation for Credit Counseling.
It’s important to finally note that you should not pay thousands of dollars to have an agency put you into a debt management plan. It shouldn’t cost you more than about $50 to set up the plan and about $25-$35 a month to be in the plan.