Credit Counseling... Good or Bad?

iVillage Member
Registered: 08-20-2005
Credit Counseling... Good or Bad?
5
Thu, 09-01-2005 - 12:05am

I've been told recently the only way i'm going to get out of debt is if I talk to a credit counselor. Has anyone tried credit counseling? Does it work? Any company recommendations? I'd appreciate any feedback.

Thanks

Avatar for cl_phocid
iVillage Member
Registered: 03-26-2003
Thu, 09-01-2005 - 3:37am

Forget everything you've been told.

All my best,
Danni

iVillage Member
Registered: 08-19-2003
Thu, 09-01-2005 - 8:39am

Well just to clarify that you can get out of debt with out counseling, but you have to commit to getting out of debt and changing the behavior that got you there.

I have never tried it, hopefully someone will have more info. I believe they can only help you when its unsecured debt, you are behind on payments or unable to make minimums, and if your interest rates are high.

Shannon

Shannon


Pregnancy%20ticker
iVillage Member
Registered: 09-07-2003
Thu, 09-01-2005 - 8:56am

Hi Jen,

I recently went to a credit counselor, and was told they Couldnt help me. But here's the deal on what generally happens.

I went to the local CCCs, which would be what I recommend. they are nationally accredited and a non-profit...so their fees are lower then other companies, and you have a reasonable assurance they know what they are doing. To find a local CCCs check out the national website www.nfcc.org.

If for some reason a CCCs doesnt work for you, call your credit card's customer service line and ask for a few recommendations. MBNA gave me 3 companies that they work with.

What happens with a CCCs is they work with your creditor to lower your interest rates. and also, make sure your money gets paid on time to them, so long as you send YOUR check to CCCs on time. For example, thru the office I went to she told me Chase cards would go to 6% and Bank of America to 9.9%. MBNA would be between 0 and 15%, depending on my credit score.

Using that, they tell me a payoff date. In my case, it was 54 months to be debt free.

However, your minimum payment will still be 2 to 2.5% of your starting balance....so, there's little to no change in your monthly payments. what little change there Might be is replaced by the $30 a month charge for the CCCs services.

~ in fact, I would have only used CCCs for 3 cards, and my payment to CCCs was $4 HIGHER then the total of those 3 minimum payments.

When I called CCCs we spent quite a bit of time making my monthly budget...something you could do on your own. Living expenses, food, gas, extras....she even asked me how often I get my hair cut or nails done! Then, we went over my income sources. and THEN we started talking about debt.

She told me right then what my interest rates would be, what my monthly payment would be, what my payoff date would be. we talked about "what if I want to snowflake," as well.

However, my income didnt support my budget and my debt payments (thus, the reason im IN debt), so, I cant even start the program. the program doesnt work unless your budget is balanced, obviously.

basically, everything that they did for me, You DO have the power to do yourself. MBNA had me at 29%, and when I called and pleaded...I got it down to 14%...which is in that 0-15% window CCCs gave me. the lower interest rates on Chase and Bank of America would have helped a LOT....but I would have had to weigh the effect on my credit report of using credit counseling, vs. the lowered interest rate.
they're charging you $30 a month for only having to write 1 check a month, rather then 1 to each of your creditors.

If you're just...at a loss as to where to Start....I would recommend calling CCCs for help in doing a budget. they'll offer you budget cutting ideas, as well. ~ but NOT signing up for the payment program right away. Consider your options carefully.

If you just need help trimming your budget so you can live within your means, the free counseling would help you, but the actual debt payment program might just be silly (why add $30 a month to your expenses?) On that note, I know that if you post your budget here, you will get feedback from a LOT of people who have been in your place and they will make recommendations for you, as well.

IF you're someone who has already trimmed as much as you can off your budget, and you're already making on-time payments to creditors, and you're paying more then the minimum on at least one card, regularly....then you want to carefully weigh lowered interest rates vs. the impact of "credit counseling" ~~ and you want to be sure you have tried EVERYTHING you can to get your interest rates lowered on your own. call 3 days in a row and ask the same questions...til you find someone who gives you the answers you want. Seriously.

Now, if you're someone who already has trimmed the budget as much as you can, but you're JUST making minimum payments, you dont have even $5 left over beyond the minimums...you already have a 2nd job, or its not feasible for you to do so (single mom, etc), and because of your payday vs due dates you're making "slow" payments and getting hit with fees every month.... BUT, you CAN make the minimum payments....then Credit counseling might be for you, as it will help regulate everything so you're not getting hit with fees and will lower the interest to the point that you're not just treading water by making the minimum payments.

Hope that helps,

~ Teresa

*Edited to add that the other thing is, with CCCs its like a car loan...your minimum payment stays the same for the ENTIRE time you're on the program. it doesnt go down as your balance goes down. when you have 1 card paid in full you dont have the option of putting that payment into savings, they WILL snowflake it to the other cards. So, for my 3 cards, it would be about $15K in debt...and I would be signing myself up to make $411 monthly payments for the next 54 months. just something else to think about.




Edited 9/1/2005 9:00 am ET ET by teresawhe

Teresa
http://www.affordingpickles.blogspot.com

iVillage Member
Registered: 02-14-2004
Thu, 09-01-2005 - 9:34pm
I have to disagree a bit with previous posters, as I am totally pro consumer credit counselling. We could not control our debt, not at all, as we lived several years with too much month left at the end of the money. I kept thinking I could pay it down myself, but there was nothing to keep me from still charging here and there. I didn't want to give up the control I had in managing my cards.
When I called the credit counselor and started the debt management plan, the charging stopped in its trackes because they force you to stop. If you open any new credit card accounts you will be kicked off and the interest rates go back to the 29%, etc. That was a scary thought for us.
You sign a contract that you will stop charging or be kicked off the plan. I tried to call the creditors and it was no-go on reducing interest rates. There was no way to even keep up with minimum payments. We needed a plan, and fast. So, for $5 a month fee they deduct $470 (down from payments of over $700 a month) each and every month with the promise of being paid off in 58 months (now 9 months) (we use cccamerica.org). They make you swear on your grave you will stop charging and they close every account you own but one, open for real emergencies. Thye told us just making the payments we were before would entail being paid off in 12 years.
So now, almost 9 months to the finish line, it was the best thing we ever did, ever, without question. Nothing beats the 0% interest we got for 5 years from Bank of America, or the 5.9% from Direct Merchants, nothing, nothing, nothing. Nothing beats the instant relief of knowing a third party is handling your debt for you. No more collections calls, nothing.
They analyze your debt and decide which creditor to pay the most to at first, etc., until each card is paid off, then the extra money is paid onto the other cards. Sure makes snowflaking easy.
And the effect on our credit: None. The FICO formula doesn't figure in credit counseling and my credit score is actually a little better than before the plan. While on the plan I've refinanced the house and purchased a vehicle and great interest rates, no problems at all.
NO REGRETS!!!!!!
Avatar for mahopac
iVillage Member
Registered: 07-24-1997
Fri, 09-02-2005 - 10:55am

I completely agree with "debtsucks" in the prior post. We started with CCCS in July 2004 and have paid off about $10,000 of $50,000 in unsecured debt. In the year prior, we had paid off almost nothing while making minimum monthly payments because our interest rates were so high. With CCCS, we pay the same amount per month, but now the interest rates are 5%-9.9%. The balances are dropping rapidly, and in another 4 years (more likely sooner, since I switched to a higher-paying job/career), we will have paid it all off.

I did a lot of homework before I signed up, so I knew that they make their money not just on the monthly fee but also on the float between when they do the automatic withdrawal from my account and when they pay my bills for me. I changed the due dates on my credit cards so that they would get paid on time, e.g. CCCS makes the withdrawal on the first of the month and the bills get paid on the 15th. It's a long time for CCCS to make money on the float, but it ensures that my bills are paid on time and I don't incur late fees, and it doesn't affect how much I pay.

The downsides of CCCS are that you might have to put all your credit cards except one on the plan and you won't be able to take on any more unsecured debt. I view those as GOOD things! You are allowed to take on secured debt (we got a mortgage and home equity line of credit), and your being on CCCS may not affect your credit rating at all. Ours was even slightly above average, and in the long term, being on CCCS will help us, since it is bringing our debt level down.

So I'm a big fan. But do your homework first, learn the ins and outs, and ONLY go with an agency that is either CCCS or found on the web site the prior poster gave you. BTW, the first agency I called was horrible on the phone, but the second one was exactly what I was looking for.

BTW, you still have to make total lifestyle changes to get out of debt, and CCCS won't help you with that. We went to them after we had already wrung out all unnecessary expenses from our budget and tried negotiating with the credit card companies directly (total waste of time). Also, DH (who's a SAHD) started working on the weekends to bring in an additional $400/month of under-the-table income, and I made a career switch (I will make 30% more this year than last year), but we have basically not changed our lifestyle with the higher income. CCCS is just one component of many changes we made.

Kelly