Dealing With Debt: Credit Counseling

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Like so many laid-off Americans, Francine Adams is trying to cook up a new career. After losing her job as a systems engineer, she’s now trying to make it on her own with a line natural skin care products she created and makes herself.

But what she couldn’t do herself was get any cooperation from her credit card companies. She did the right thing: called them, told them she’d been laid off and asked for lower payments. No dice.

“It was very disappointing for me to find out that some of my creditors didn’t want to cooperate with someone that was trying to maintain a good relationship and preserve their credit.”
-Francine Adams, Credit Counseling Client

But Francine didn’t give up: she found a non-profit credit counseling organization.

“Credit counseling organizations can typically get clients one payment that’s lower than all their payments put together. Interest rates are typically lowered to around 9 or 10 % depending on who their creditors are and it typically gets people out of debt in 4 to 4 and a half years.”
-Gary Herman, Consolidated Credit Counseling Service

For Francine, it was just what she needed.

“My minimums totaled, actually, up to about $700 a month. And now with Consolidated I’m consistently paying $420 a month and that includes their fee.”
-Francine Adams, Credit Counseling Client

These programs typically take about 4 years to complete. The cost varies, but it’s normally less than 50 bucks a month. It’s not for everyone: you need to have sufficient income to pay off your debts. If you don’t, bankruptcy is the better choice. But for people like Francine, it’s time and money well-spent.

“Get into a program sooner rather than later. Because the longer your situation continues, the more stress you’re going through unnecessarily, and the more difficult it is to recover.”
-Gary Herman, Consolidated Credit Counseling Service

But be careful when you approach credit counselors. Ask them how they plan to help you and how much it’s going to cost. Talk to several. Pick the one that sounds least like a salesman and most like a true counselor.

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Comments & discussion

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  • BETSY

    I SAW A SEGMENT ON CREIT COUNSELING..WHERE YOU SAID THERE ARE “FREE CREDIT COUNSELING AGENCYS”…YOU SAID YOU WOULD LIST THE ONES YOU WOULD RECOMMEND…WHERE DO I FIND THIS INFO?

  • http://yahoo BETSY

    I SAW A SEGMENT ON CREIT COUNSELING..WHERE YOU SAID THERE ARE “FREE CREDIT COUNSELING AGENCYS”…YOU SAID YOU WOULD LIST THE ONES YOU WOULD RECOMMEND…WHERE DO I FIND THIS INFO?

  • gary

    Thanks for the advice on credit counciling, I have used it in the past to help with money issues, the only thing you may mention is , the credit counsilor will not help till you are about 2 or 3 months behind before they will help you, alleast this was my experinse.

    • Betty

      This is what is so mind-boggling! Why not help before your situation becomes a problems. Why do you have to wait until you're behind in your bills, stressed out with the notices and threatening phone calls?

  • gary

    Thanks for the advice on credit counciling, I have used it in the past to help with money issues, the only thing you may mention is , the credit counsilor will not help till you are about 2 or 3 months behind before they will help you, alleast this was my experinse.

    • Betty

      This is what is so mind-boggling! Why not help before your situation becomes a problems. Why do you have to wait until you're behind in your bills, stressed out with the notices and threatening phone calls?

  • Brian

    Consumer Credit Counseling Services, CCCS, is the best most legit credit counseling agency I could find. There are A LOT of scammers out there. I talked with CCCS, who was going to help me. They did not tell me to not pay my bills for any period of time. That would be very bad for your credit. They were going to negotiate better interest rates, 4 to 10 percent on credit card debts, but you have to sign up for a 4 year plan, which brought my payment up to what I was already paying and having a hard time with. Since I couldn’t afford their payment, they were sort of pushing me to either raise my income somehow or look at bankruptcy.
    Instead of this I called the creditors myself, asked to speak to soemone about their hardship programs, you have to ask for it by name sometimes, they do not offer it up very easily, make up some story about why your income has changed, (lost second job, wife lost second job, had a baby, etc.) you have to give them a ton of information about your bills and income, and tell them a payment you think you can afford, go with half of your current payment, and then they offered better interest rates to me. DO NOT ask for lower interest, just the lower payment. I cannot use the cards, I got from 4 to 16 percent interest rates and will be paid off in 5 years, AND I am not paying someone else to do what I could do in a couple of hours. Most counselors charge $50 per month for 4 years, which is $2400 that I will not have to pay a counseling agency. That plus the longer payment period and the payment is less than I would have been paying CCCS, even though they would have had a better interest rate on one of my cards. Also, with a counseling agency you have to do every credit card that you have, in my case, I only wanted to do my 3 cards with high balances, the others with very low balances or low interest rates, I left alone. Since I don’t know how this plan will show up on my credit report, I think this is better so it will only show on 3 out of 6 cards.
    I haven’t done this yet, but you could also try to do your own debt settlement. For this I think you would have to not pay the bill for a couple months, then call and say you just sold your car or something which is why you have the lump sum suddenly, and before/instead of filing bankruptcy you are trying to settle with them. Don’t trust anything until you have it in writing from them. I know this will show on the credit report, it will show as settled, but paid off is still better than other bankruptcy.
    Good Luck to you all in trying to avoid bankruptcy. I have heard of companies coming after you years after going through bankruptcy for the debt that was written off by the court. They sell that old debt to collectors that come after you. Bankruptcy is not the get out of jail free card it used be.

  • Brian

    Consumer Credit Counseling Services, CCCS, is the best most legit credit counseling agency I could find. There are A LOT of scammers out there. I talked with CCCS, who was going to help me. They did not tell me to not pay my bills for any period of time. That would be very bad for your credit. They were going to negotiate better interest rates, 4 to 10 percent on credit card debts, but you have to sign up for a 4 year plan, which brought my payment up to what I was already paying and having a hard time with. Since I couldn’t afford their payment, they were sort of pushing me to either raise my income somehow or look at bankruptcy.
    Instead of this I called the creditors myself, asked to speak to soemone about their hardship programs, you have to ask for it by name sometimes, they do not offer it up very easily, make up some story about why your income has changed, (lost second job, wife lost second job, had a baby, etc.) you have to give them a ton of information about your bills and income, and tell them a payment you think you can afford, go with half of your current payment, and then they offered better interest rates to me. DO NOT ask for lower interest, just the lower payment. I cannot use the cards, I got from 4 to 16 percent interest rates and will be paid off in 5 years, AND I am not paying someone else to do what I could do in a couple of hours. Most counselors charge $50 per month for 4 years, which is $2400 that I will not have to pay a counseling agency. That plus the longer payment period and the payment is less than I would have been paying CCCS, even though they would have had a better interest rate on one of my cards. Also, with a counseling agency you have to do every credit card that you have, in my case, I only wanted to do my 3 cards with high balances, the others with very low balances or low interest rates, I left alone. Since I don’t know how this plan will show up on my credit report, I think this is better so it will only show on 3 out of 6 cards.
    I haven’t done this yet, but you could also try to do your own debt settlement. For this I think you would have to not pay the bill for a couple months, then call and say you just sold your car or something which is why you have the lump sum suddenly, and before/instead of filing bankruptcy you are trying to settle with them. Don’t trust anything until you have it in writing from them. I know this will show on the credit report, it will show as settled, but paid off is still better than other bankruptcy.
    Good Luck to you all in trying to avoid bankruptcy. I have heard of companies coming after you years after going through bankruptcy for the debt that was written off by the court. They sell that old debt to collectors that come after you. Bankruptcy is not the get out of jail free card it used be.

  • sandy

    How does the credit counseling affect you overall credit score? Although, I also think that the credit score companies are also a terrible scam! it is a set up for life because if you have good credit through all three credit report companies, you get bombarded with credit card offers and ways to "put" you in debt! If its bad due to credit card debt and high debt to income ratios which initially is not looked at by a credit card company, you then do not get any approvals and they still "ding your credit report"!!!

    Anyway, we just found out that in order to settle a debt, you must also accept that what you do not pay back you must claim as income. For example, if you owe 5000 dollars and you settle at 2300, you will receive a form from that creditor for the remaining 2700 that you must claim on your taxes as income. For us, that made us actually go into another higher tax bracket therefore we declined the settlement offer and went with the credit counseling option but still not sure how that in the long run will affect our credit reports.

    Our credit was not very good to begin with so the counselor told us that it all depends on the creditors, some will see it as a good thing, some will see it as a bad thing. She recommended that when we are in a better situation financially, to try to open a couple of low credit line credit cards and use and pay the balance quickly to build up the credit score while paying the credit counseling for the others in order to show better credit reports in the future when we are done with paying off the higher ones that are in the program. We shall see!

  • sandy

    How does the credit counseling affect you overall credit score? Although, I also think that the credit score companies are also a terrible scam! it is a set up for life because if you have good credit through all three credit report companies, you get bombarded with credit card offers and ways to "put" you in debt! If its bad due to credit card debt and high debt to income ratios which initially is not looked at by a credit card company, you then do not get any approvals and they still "ding your credit report"!!!

    Anyway, we just found out that in order to settle a debt, you must also accept that what you do not pay back you must claim as income. For example, if you owe 5000 dollars and you settle at 2300, you will receive a form from that creditor for the remaining 2700 that you must claim on your taxes as income. For us, that made us actually go into another higher tax bracket therefore we declined the settlement offer and went with the credit counseling option but still not sure how that in the long run will affect our credit reports.

    Our credit was not very good to begin with so the counselor told us that it all depends on the creditors, some will see it as a good thing, some will see it as a bad thing. She recommended that when we are in a better situation financially, to try to open a couple of low credit line credit cards and use and pay the balance quickly to build up the credit score while paying the credit counseling for the others in order to show better credit reports in the future when we are done with paying off the higher ones that are in the program. We shall see!

  • JJL

    My experience with a credit counseling agency is this:
    My account was sold to a law firm across the country who paid my bills for a few months, then quit paying them altogether but still debited my payment to them from my checking account. I stopped payment to them after I noticed the first credit card was unpaid for that month. I was never able to reach anyone at the law office.

    Later, I received paperwork in the mail for a class-action law suit against this law firm.

    Then any time we tried to apply for credit for anything, we were denied because credit consolidation buts a mark on your credit report that looks bad to creditors and stays there for a few years.

    Credit consolidation was a nightmare!

  • JJL

    My experience with a credit counseling agency is this:
    My account was sold to a law firm across the country who paid my bills for a few months, then quit paying them altogether but still debited my payment to them from my checking account. I stopped payment to them after I noticed the first credit card was unpaid for that month. I was never able to reach anyone at the law office.

    Later, I received paperwork in the mail for a class-action law suit against this law firm.

    Then any time we tried to apply for credit for anything, we were denied because credit consolidation buts a mark on your credit report that looks bad to creditors and stays there for a few years.

    Credit consolidation was a nightmare!

  • lily

    Please be sure that you are not comparing apples and oranges. Credit counseling/debt management plans will assist in lowering interest and/or payments and paying your debt in full. Most of the major creditors will "reage" your account, calling it current, within 30 to 90 days.

    Debt settlement companies hold your funds for a period of time , hoping the creditor will settle with you. In the meantime, the debt grows with late, overlimit fees and further finance charges. Many major creditors will NOT deal with settlement companies; often, they will go straight to court if they learn you're with a settlement company. Also, as mentioned above, any "charged off" funds are considered income and subject to taxes.

  • lily

    Please be sure that you are not comparing apples and oranges. Credit counseling/debt management plans will assist in lowering interest and/or payments and paying your debt in full. Most of the major creditors will "reage" your account, calling it current, within 30 to 90 days.

    Debt settlement companies hold your funds for a period of time , hoping the creditor will settle with you. In the meantime, the debt grows with late, overlimit fees and further finance charges. Many major creditors will NOT deal with settlement companies; often, they will go straight to court if they learn you're with a settlement company. Also, as mentioned above, any "charged off" funds are considered income and subject to taxes.