Assuming you are referring to credit counselling offered by companies
like Consumer Credit Counselling Services, a not-for-profit company,
this is the general process:
1) You enter counselling.
2) You destroy your credit cards and turn over the bills to them.
3) Collections, judgements and other debts are also turned over to
4) You work out a budget with them, including everything you spend,
and figure out how much you can pay per month on your debt.
Now, they contact the creditors and tell them that they are managing
your accounts. The creditors will close the accout, and mark the
account 'Closed by Credit Grantor' in your file. It may also have the
notation 'Managed by CCCS' or something similar. The credit card
companies may (or may not) choose to reduce the interest rate they
At this point, you are effectively unable to obtain new credit, and
that is good. The idea is to pay off your debt, not add to it.
Each month, you make a payment to the credit counselors, and they
divide it among your creditors. After 5 years or so, all of your debt
will be re-paid. All of your accounts will be marked "Paid in Full"
on your credit report. However, they will *also* still have "closed
by credit grantor" listed on your credit report.
At this point, you have the ability to get some new credit, although
at a high-risk rate.
The debts and credit cards that were closed while you were in credit
counselling will remain on your credit bureau for a period of 7 years.
If you leave the program without paying off all of your debt, you will
have some problems; some card companies will increase your interest
rate to the default level; some will demand immediate payment of the
full amount due.
This doesn't sound too happy. However, while you are in credit
counselling, if you need to purchase a new car or a home or other
major item that is only available on credit, they often will work with
a lender to get things to go your way. This is always on a
case-by-case basis, and depends on many factors.
How does this differ from a bankruptcy? First, it is voluntary on the
part of you and the creditors. That makes some difference in the
future. Second, since it is voluntary, not all creditors will reduce
the interest rates. In a bankruptcy, all interest charges are
stopped. Third, a bankrupcy is listed on your credit record, and
remains there for 10 full years.
Some great reading is available at the various CCCS websites. Some
include the Springboard company FAQ at:
and the CCCS of Dallas FAQ at:
Before you enter a debt management program, here are some questions to
ask of the company:
* Is their agency accredited? By whom?
* Are their counselors certified? By whom?
* Are they licensed in states where it is required?
* Can they meet with you face to face if needed?
* Do they provide counseling and education workshops?
* Can they work with all your unsecured creditors?
* Are they not-for-profit?
* Are client deposit accounts audited annually?
* Do they have a board of volunteer trustees?
* Can they provide proof of director and office, errors and
omissions, and employee dishonesty insurance?
Additionally, the most reputable one are listed as the Consumer Credit
Counselling Service of "Your state here". They are part of a national
More good information is available at cardratings.com about debt
In summary, entering a debt management program will cause some black
marks to appear on your credit. If you are currently making all of
your payments in full, and not late, or in default, on any of your
debts, it may not be the best choice fo you. However, if you are late
on one or more debts, in default, have creditors calling you, etc. you
already have blackmarks on your credit. A CCCS debt management
program may help you to get out of debt.
I hope this answers your question; if you need further information,
please ask for a clarification before rating this answer.
cccs hurt credit rating