Certainly, you’ve seen the ads on television. Happy people are shown prancing though fields of green, celebrating their financial freedom. The ad would have us believe that all we have to do is contact the consumer credit counseling service being advertised, and we are guaranteed emancipation from debt, For the millions of Americans who are in debt over their heads, the idea of having their debt load reduced is appealing. But not all of these services are as magnanimous as they seem, and a wise consumer needs to do a bit of research before signing on the dotted line at one of these agencies.

There are two types of consumer credit counseling services – the profit-based organizations and the non-profits. The difference between the two is important to understand. Profit-based agencies charge a fee to consumers to consolidate their debt, while the non-profits do not charge a fee for basic services, instead, receiving payments from the creditors with whom they work. Additionally, you will be encouraged to participate in a money management program to help you avoid future credit problems.

How the For-Profit Agencies Work

A consumer credit counseling agency that is profit-based, will advertise free counseling, which entails creating a balance sheet showing your debts, expenses, and income. Then, they will figure out a monthly payment that you can afford, and then offer a debt consolidation loan, which they will use to pay off all of your debt. You, in turn, will repay the agency a fixed amount each month until the loan is repaid. The problem with this is that the agency charges interest on this loan, and the rate may be so high that, in the end, you will have paid out more than the total of your old debt.