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Credit Counseling or Debt Management Plans -
Often referred to as CCCS

Credit Counseling is a debt management program where you make a single monthly payment to a debt counseling agency. In turn, that agency distributes the money to your creditors on your behalf, ideally at lower interest rates so you can pay off the debt faster. Of all the available debt options, Credit Counseling is by far the most popular, with millions of Americans participating. Does this mean it's the best choice for most people struggling with debt? No! There are numerous problems with this approach, and in recent years, Credit Counseling has come under heavy criticism from impartial consumer groups and government regulators. One of the most misleading aspects of Credit Counseling is the "non-profit" status of most agencies. Consumers often think that "non-profit" means there are no fees involved, but this is not the case.

Another huge problem with Credit Counseling is the divided loyalty of the agencies. Credit Counseling organizations are dependent on creditors for the majority of their income (in the form of kickbacks of 7-15% of the monthly payments), yet the agency supposedly represents the consumer. How can the consumer expect truly objective advice from an agency that directly accepts compensation from his or her creditors?

That's why one of the criticisms of the Credit Counseling industry is that it acts like a big collection agency for the credit card banks.

Also, even if these problems are taken into account, the simple fact remains that at least three out of four people who start a Credit Counseling program do not complete it. Yet you'll rarely hear anyone from the industry or financial media discuss the alarming failure rate of Credit Counseling programs.

The basic problem here is that the math doesn't make sense for the average consumer who's struggling with their monthly payment load. An example will help to clarify this problem. Let's assume you owe $25,000 in credit card debt at an average interest rate of 20%, with minimum monthly payments of $500. It will take about 9 years to pay off the debt with this structure, assuming you don't miss any payments and start getting hit with late fees.

After enrolling in a Credit Counseling program, how much better off will you be? It all depends on how low the agency can get your interest rates. Lately, the banks have squeezed the industry, so the discounted rates are not as attractive as before. We'll use 12% as the new average. So if you keep your payments at $500 per month as before, how long will it take you to get out of debt? First, we need to deduct the fee charged by the agency. We'll be conservative and only allow for $25 in monthly fees, so $475 of your $500 goes toward debt payments. On paper, it looks a little better, with a payoff time of 75 months (6 years, 3 months) to become debt-free.

Here's the problem though.

What happens if you can't keep up with that $500 per month? After all, you sought debt help because you were struggling, right? Let's say you drop down to $450 per month. Now you're looking at 90 months (7 years, 6 months), which is not much better than the 9 years you started out with. Cut your payment even farther, and you're right back where you started from. Bear in mind here that in our example, we're assuming you're working with a top notch Credit Counseling agency that charges low fees and obtains greatly reduced interest rates for your accounts. Yet even with the best of agencies, you're still looking at a 5 to 9 year program to get out of debt. That's why most folks never complete these programs.

Credit Counseling does not tackle the root cause of the debt problem itself, which is the principal balance owed. That's why this method doesn't work for most debt-burdened consumers. Most people struggling with debt simply cannot afford to pay back the full balances, plus interest and agency fees. This debt solution might be helpful during a short-term financial situation, but over the long-term, $25,000 of debt is still $25,000 of debt.

Just reducing the interest rate a little does not provide enough debt relief for
the average consumer.

Our job at Liberty Financial Management is not just to counsel you on your debt problems, but to help you do away with them entirely. People often don't read the fine print when applying for a credit card. Credit card companies try to lure you in with promises of a low APR and no balance transfer fees, but there is usually a lot more at stake.

For instance, did you know that your credit card company can raise the APR at their own discretion? Even if you make the monthly payment on time, your APR can go up. What this means is that you could be paying more towards the interest and less towards the actual debt, and your debt will continue to rise. Many people don't even read their bills from month to month, they just look at their monthly minimum and sign the check.

Even if you are deep in debt with one credit card company, you will still receive offers for new credit cards on a daily basis. People try to pay off credit cards with new credit cards and before they know it, they're even more deeply in debt. We have seen this over and over again. You start knee-deep in debt and in a very short period of time, you are in way over your head. For many people, credit card debt is a way of life, but it doesn't have to be that way.


We are more than a service that can remove or reduce your debt--we are consumer advocates. It is our job to fight the credit card companies that are in the business of creating debt for those people who can afford it the least. Liberty Financial Management is not just about saving you money; we're about giving you peace of mind. We're in the business of helping people, and we like what we do. Contact us to see what we can do for you.


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