Let me preface my answer by pointing out two alternatives. The first is suffering with the burdens of too much consumer debt, harassing phone calls, nearly daily collection letters, and the fear that you can’t dig out of the problem. The second is bankruptcy, which can completely scar one’s credit for years, and depending on how it is structured lead to the loss of possessions.
With that in mind, what credit counseling services really do is tackle negotiation with your creditors – to put clout into the negotiations that you, as an individual, couldn’t bring.
That means, at bare minimum, the elimination of harassing phone calls and the constant stream of collection letters. Almost universally, it means the reduction of abusive interest rates into something manageable, and the elimination of late payment fines. In a healthy portion of the cases, it’s the full elimination of interest (yes, that’s zero percent) while the debt is being paid off.
What does this mean for a consumer? It means coming to grips with the shame that you got yourself into such a mess, and being brave enough to walk into an office that can help you (Consumer Credit Counseling for example). They will tackle the negotiations with your creditors and work out a payment plan that you can handle. The result of that will be one payment you will make to the credit counseling service, who then distributes the proceeds to the various creditors according to the plan that was negotiated.
The downside….you have to destroy your credit cards and turn them in to the service. Credit Counseling organizations are not there to help you with 9 of 10 of your cards only to let you run up the 10th to its limit. Yes, that means you are going to have to go without having easy access to blind spending. It might even mean you nix the premium cable channels or a similar vanity service.
These agencies expect lifestyle changes – they expect you to get away from the things that got you into the unmanageable debt in the first place. For some, perhaps that’s too much to ask. For those that recognize they need a turning point in the road, it can be a blessing and the solution they’ve been hoping for.
Do they really help – absolutely, if you are willing to do your part. If you aren’t, there’s not a thing they can do for you.