Credit Counseling Service Good Idea?
Find a Conversation
| Wed, 05-04-2005 - 12:27pm |
Hi Everyone,
I am new to the board and would like to have some suggestions.
I am trying to decide if I should sign up for a credit counseling service.
I am currently carrying a large amount of credit card debt. I am not behind on any payment or ever late on any payment. I am starting to feel overwhelm and discourage. I am worry I will not have this debt payoff ever. I wanted to payoff all my debt within 5 or 6 year. I don't think it will happen if I can only afford to payoff the minmum each month.
I want to know if the Credit Counseling Service can help reduce the interest rate of each credit card? By doing that will it affect my credit score (FICO). I just have my credit socre check and it shown 702. I am worry if I sign up for credit counseling, I might have a lower score.
Any suggestion and experience with credit counseling will be helpful!
Sze

I have yet to hear of someone having a good experience with a credit counseling service.
My experience has been just the opposite. Before anyone considers this a blanket endorsement of DMPs (debt management plans), let me just say that I do think you have to be careful and ask a LOT of questions up front when you sign up with a DMP. I would NEVER use one of those services that sends mass emails. And the first one I was referred to by Bank One when I tried to negotiate a reduction in interest rates was horrible, but the second one I tried was just fine.
The positives are that they negotiated a lower rate on every single account, so we pay 5-10% interest instead of 13.9-27.99% interest. They allowed me to keep out my Amex and one Visa card. One of my creditors, MBNA, *requires* that if you're going to do a DMP that they're part of, ALL of your accounts except for one be part of it (Amex doesn't count because it has to be paid in full every month). The downside is that you can't take out any more *unsecured* debt - but we shouldn't be able to anyway!
We have been on the DMP for 10 months and have had no problems whatsoever. Our payment to CCCS is withdrawn automatically on the 1st of every month (I get paid on the last day of every month). They make money on a $35 per month fee and on the float - they pay it 5 business days after withdrawing the money from my account. Before we started on the DMP, I changed the due date on all my accounts to the 10th or later of every month so that we would not incur any late charges. I can pay any or all the debt off either directly to the creditors or through the DMP. I can drop out of the DMP at any time with no penalty. The one thing I wish I had done before getting on the DMP is close all my accounts myself, because about half of them, once I was on the DMP, were closed by the lender. You have to close them anyway, and closing them doesn't mean you have to pay them off all at once. "Closed by consumer" looks better on your credit score than "closed by lender."
That said, my credit score is still 670 - not the best but certainly not bad - and only 2 out of 8 accounts show that they are being paid by an agency. In any case, ALL of them show that they are being "paid as agreed." The acid test, of course, is can you get secured credit, i.e. a mortgage or auto loan or HEL - and our recent mortgage applications show that in our case, the answer is absolutely yes, and with no penalty in terms of having to pay a higher interest rate. Apparently sufficient, consistent cash flow and paying our bills on time are more important in applying for a mortgage than who is disbursing our debt payments. Our FICO simulation shows that if we paid off our debt, we'd have a credit score of 715+.
Kelly
The CCCS we uses charges only $5 a month fee, which is quite a deal. And my credit report? I don't know my score, nor do I care at this point. I don't intend to purchase any house, car, etc, until after this is all paid off, whereupon my score should be fine again. But I did check my report. To my surprise, none of my creditors reported anything. It looks just like payments are done as usual with no arrangements. Reporting to the credit bureau is up to the individual creditor, and mine have reported nothing. All closed accounts were listed "closed by consumer".
My creditors are Citibank, Bank of America (reduced interest to "0%", by the way), Direct Merchant's Bank, Discover, Wells Fargo and GE Capital.
So, basically, talking to a credit counselor is a good idea. Oh, my the way, I just purchased a used car with a 5% loan with no problems at all with approval.
You do have to agree not to open any new accounts and can only purchase necessities with a loan, like a house or a car.
I am very grateful to the CCCS service. Without them, it would take 12 years to pay off my debt.
Good luck.