One option most people don’t think of is using credit counseling to stop foreclosure. Credit or debt counseling is a service offered by debt relief companies, many non-profit, that is touted as an alternative to bankruptcy. The agency requires the debtor to complete a detailed budget, including all payments due on debt. Credit counseling agencies often claim that they can lower the total debt owed, therefore lowering monthly payments.

When a debtor uses the services of a credit counseling agency, a payment is required monthly. This payment includes fees to the counseling agency, which are sometimes very large, plus enough to cover payments to all of the creditors. The company remits payments to the creditors through this escrow account. In order for credit counseling to stop foreclosure, the credit counselor must be able to reach an agreement with the lender. Otherwise, credit counseling will not help your situation.

Sometimes these agencies receive a large proportion of their funding from creditors. This relationship leads people to view the counseling agencies as simply a way for credit card companies to expand their collection efforts. While the agencies generally advertise themselves as being for the debtor, fighting the credit card companies to lower the debtor’s bill, some of them are really working hand in hand with the credit card companies to retrieve debts owed. You should try to determine whether the agency has a relationship with any of your lenders before entering into an agreement with them.

Once a debtor has entered into an agreement to contribute funds to an escrow account set up by the credit counseling agency, it is very hard to stop making the payments. If a debtor’s situation improves, and they decide that they would like to pay creditors on their own, agencies often will not allow this. The Federal Trade Commission has fined these agencies for unsavory practices, but the practice continues.

Credit counseling agencies claim to be a better choice than bankruptcy, but it has been found that participation in a payment plan through an agency can damage the debtor’s credit score significantly. It’s important to be aware that using a credit counseling agency to pay debts will be noted on the debtor’s credit report. Of course, if using a credit counseling agency allows you to make your mortgage payments so you don’t lose your house, it will be worth it.

Many debtors have found that credit counseling agencies do not pay creditors on time even though there is money in the escrow account. This leads to late payments, bringing down their credit score even further. When considering a credit counseling agency to stop foreclosure, extensive research must be done to make sure the company is reputable. Check for consumer complaints through the Internet, including on the Better Business Bureau’s website.