Should Anyone Use a Credit Counseling Service?

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« How We Got Out of Credit Card Debt | Main | 14% of Americans Carry 10 or More Credit Cards! »

Should Anyone Use a Credit Counseling Service?

By JLP | February 21, 2007

One of the most irritating commercials on TV these days is the commercial for Consolidated Credit, which opens with a guy standing on a treadmill and he says:

“You’re stuck on a treadmill. You’re making MINIMUM PAYMENTS on your credit cards and you just don’t get anywhere.”

Well duh! It doesn’t take a genius to figure that one out.

The actor then goes on to tell viewers to call Consolidated Credit because they’ll get the credit card companies to reduce or eliminate your interest.

Although the commercial sounds great to those who are struggling with credit card debt, they most likely will not be able to do anything for you that you can’t already do for yourself. And, even if you do decide that you might want to work with a credit counselor, be sure and read The Consumers’ Guide to Credit Counseling by Liz Pulliam Weston. She does an excellent job explaining what credit counseling is and whether or not you even need it. From her article:

So let’s make this clear: If you’re able to pay your bills and are current on all your accounts, you almost certainly don’t need credit counseling. If your interest rates are too high, you usually can negotiate a lower rate with your credit-card companies just by asking — or threatening to move your account elsewhere.

Here’s when you might think about full-scale credit counseling:

You can’t pay the minimums on your credit cards.

You’re consistently late paying one or more of your regular bills.

You’re being hounded by creditors and collection agencies.

Your efforts to work out reasonable repayment plans with your creditors have failed.

Be warned: If you’re too far in debt, credit counseling may not be able to help. There are limits to how little your creditors will accept, and a credit counseling service may not be able to cut your payments enough to either give you breathing room or get you out of debt. If that’s true, bankruptcy may be the best of bad options.

In a lot of cases you are probably better off dealing with this on your own. Don’t worry, there’s lots of blogs that will give you moral support:

Heck, you could even start your own.

Topics: Credit, Credit Cards |

Comments to “Should Anyone Use a Credit Counseling Service?”

Clever Dude Says:
February 21st, 2007 at 9:08 pm

The funny thing about writing how we don’t need credit counselors (sort of) is that google always displays ads for credit counseling services on these posts.

Joseph Bales Says:
February 21st, 2007 at 11:50 pm

If you are committed to getting out of debt, you don’t need credit counseling. It’s called counseling, but really they are just negotiators. What you really need is a *plan* to get out of debt and stay out. If you are in serious debt trouble, then you need some top notch education in how to handle your finances in addition to a good plan.

Leigh Ann Says:
February 22nd, 2007 at 9:28 am

Great advice! And thanks for the link!

Scott Says:
February 22nd, 2007 at 12:16 pm

Listen, there are people out there who need help. Say what you want regarding the moral argument as to whether or not they got themselves into too much credit card debt, the fact is - they need help. Debt relief services such as credit counselors and even debt settlement companies are a huge life changer for many people.

We all have our flaws, we all need a chance to learn from our mistakes, and we all need a second chance sometimes.

Tim Says:
February 22nd, 2007 at 12:28 pm

Having used CCC in the past, I want to clarify some key points.
1. There first thing to be aware of is that are differences between CCC and debt consolidators and you should do your research in what is best for you. You should also do research in which CCC company you are going to go through. check out BBB report no the company.
2. I will disagree that you can probably negotiate lower interest rates or that you can repay your debt. The benefit of CCC is that creditors are willing to give zero to low interest rates if you go through CCC, which you would not be able to convince the creditor of giving you on your own. I’ve tried to no avail. Creditors are also increasingly becoming problematic if you have high debt and are maxed out, despite if are you are maintaining minimum payments. Creditors have created specific departments that handle repayments through CCC. Many creditors will NOT negotiate lower rates and will direct you to CCC if you want to lower rates. Even if you were to negotiate lower rates, you will not get as low of a rate as if you went through CCC. Having tried unsucessfully for 4 months to get all my creditors to lower rates with such a high debt burden, despite being able to pay on time, I continually ran into NO unless you go through CCC.
3. If you are maxed out, you cannot get new credit and cannot move it, so threatening to move it is not viable.
4. The key point with CCC is that the agreements between creditors and CCC allows you to get much lower rate at your debt burden than you would have been able to get. Many creditors will may also have zero interst rate agreements with CCC (caveat).
5. creditors do see CCC as a positive move forward and are willing to give lowered to zero interest rates (caveat again) because you are going through CCC. CCC’s work off of equal share, which means that no creditor is supposed to be getting disbursements more than any other creditor. Creditors pay CCC’s.

With this, there are many caveats.
1. If you enroll in CCC, your creditor report will show it as such and you will NOT be able to get new credit while you are enrolled.
2. If you have late payment(s), despite not being the fault of your own and being the fault of the CCC, the creditor may renew all interest. Creditors vary in how they handle accounts in CCC. Some will continue to have original interest accrue until the principle is paid off (principle being the amount you owe at the time of creditor acceptance of CCC proposal). This makes keeping track a bit tough as well as puts you in jeopardy of having to pay everything if a payment is late. Others will re-age the account, which is good since what you owe, if there is interest, will start accruing at the point of creditor acceptance into CCC or may have 30-90 day stipulation before reaging the account.
3. CCC aren’t the best in helping. They take a monthly deposit from you and will disburse the funds. If there are payment issues or any other issues with the creditor like late payments etc, then it is on you. This is the part of the counseling portion that baffles me with CCC. They do nothing to help you. Now some will provide you with documentation that shows you paid them, but you are still responsible if the payment is late or not paid. Do NOT think that since your creditors have accepted CCC proposals and that you are now only having to pay one payment through CCC, that everything is being taken care of. Bottom line, it isn’t. You have to actively manage your debt still.
4. ask creditor to reage the account with a due date that falls within the disbursement schedule of the CCC. You may have deposited into the CCC account on the 15th, but CCC will not disburse for another week. Another way to avoid this, is to make the scheduled payment in advance so that CCC disbursements are being done in advance. This doesn’t always work with creditors which may see this as just an increased payment. The best option is to get new payment due dates that fall within the CCC disbursement schedule.
5. You need to continually look at your creditor accounts to make sure things are being adjusted accordingly–that is, the interst rate is what the creditor stated it would be in the proposal acceptance. etc.
6. Some creditors like AMEX will continue to accrue interst at your old rate until you pay off the principle at the time of the proposal acceptance. Ensure you get updates from AMEX and the like on what your principle balance is so you know when you can stop paying them. The second bad thing about AMEX is that they will count anything through CCC as a charged off account. You will have to think seriously about including AMEX in CCC or any other creditor who will list the account as a charge off. Charged off accounts will stay on your creditor report for 7.5 years. The good thing is that the charge off must be at the time of the proposal acceptance, not when you pay off the account.
7. normal payoff timeline is 4-6 years through CCC. You will submit your expenses and debits. You should think about how much you will need to live off of, b/c CCC will come up with a monthly payment based off of this.
8. you do not have to include everything in when you are going through CCC. You should think about creditors who will count it as charge off and decide whether getting zero interest rate is worth the 7.5 year ding. The positive is the fact that payoff in 6 years means that you will have to wait only 1.5 years until the charge off is off your creditor report after you are out of debt. You might also consider not putting one of your oldest credit cards in the program. Everything you put under CCC is a closed account. If you need a credit car for renting cars, you will not be able to use the credit card. Since the accounts are closed, you will have lost the credit history. If you have paid on time, you might consider keeping at least one credit off CCC and pay separately.
9. The fair share portion means that every creditor will receive an equal percentage disbursement from CCC regardless of debt amount or interst rate amount. This means that your highest interest accounts may not be paid off first. Although your monthly payment to CCC will remain the same as creditors are paid off in full, CCC will allow you to redirect money that has been paid off from one creditor to any other creditor. This will also ensure that the creditor annotates you credit report to ensure that it shows that you are no longer paying through CCC. This is also the time you redirect money toward credit with higher interest rates.
10. As creditors are paid off, ensure you request an account paid off letter from the creditor. I chose to make the last payment to each creditor directly rather than through CCC. CCC wasn’t happy and they gave me some lame argument about it would look better if the payment was finished through CCC. Having had one creditor paid late for the final payment of a whopping $1.07, I chose to ensure final payments were directly paid. I also checked monthly the principle balances with creditors that chose to continue accruing interest (i.e. like AMEX). If you have extra money, you can pay the creditor directly as well.
11. Not all creditors will accept a CCC proposal for lowered rates. Collection agencies and creditors will still accept payment through CCC, though, despite not accepting the proposal.
12. I cannot reemphasize enough, even if the CCC is accredited, that you are still responsible for everything. CCC is only a middle man that receives and disburses payments to your creditor. creditors have standing agreements with CCC’s, so the negotiating portion is a complete crock of BS. Counseling portion is also complete BS, because they do not provide any kind of counseling. Post debt credit establishment, again complete BS. Post debt credit establishment is on you by remaining out of debt. This is why I recommend keeping at least one credit card open. Keeping it open has its risks, but hopefully you are serious about getting out of debt and not getting more in debt.
13. Since you were a steller debtee, credit card companies are more than happy to provide you with a credit card post-CCC even if some of the creditors listed charge offs in your credit report. You’ve not only paid off the credit card in the past, but you’ve paid lots of interest. Credit card companies also know that the chances are you will go back into debt and can again make money off of you.
14. the first bullet of you can’t pay the minimums from the article is the problem with the article’s argument. If you are only able to pay the minimums, you will never get out of debt. You need some credit to be zero or at least lower. being hounded by creditors and collection agencies, is also not a valid argument for going into CCC. You have specific rights against being “hounded”. Really, the only reason to go into CCC is that you cannot negotiate a repayment plan on your own. Again, chances are you will not be able to negotiate. The lithmus test is whether you are able to get more credit or not. If you can get more credit, you can more than likely negotiate. If you cannot get more credit, you are more than likely not going to be able to negotiate.

Caveat Emptor » When to consider credit counseling | Samuel J. Glover & Associates, P.A. Says:
February 22nd, 2007 at 2:16 pm

[...] Credit counseling is, quite frankly, someone you can do on your own. But this is true of a lot of things in life. JLP over at AllFinancial Matters recommends seeking out a credit counselor in the following situations (via The Consumers’ Guide to Credit Counseling by Liz Pulliam Weston): [...]

Vlad Says:
February 23rd, 2007 at 12:28 am

Good points all around. But sometimes it boils down to this: maybe I’d rather have someone else cut my grass, so I’ll pay ‘em to do it. Same with the CCC’s, provided you find a decent fiduciary. Just like Pedro the Gardener, they’re in it for a buck–nothing wrong with that.

Free Money Finance Says:
February 23rd, 2007 at 5:21 am

Star Money Articles for the Week of Feb. 19

Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: AllFinancialMatters wonders if anyone should use a credit counseling service. MightyBargainHunter got a great deal on wings. Five Cent Nickel details how to get…

Debt Negotiation Says:
April 23rd, 2008 at 12:30 pm

The positive is the fact that payoff in 6 years means that you will have to wait only 1.5 years until the charge off is off your creditor report after you are out of debt. You might also consider not putting one of your oldest credit cards in the program. Everything you put under CCC is a closed account. If you need a credit car for renting cars, you will not be able to use the credit card. Since the accounts are closed, you will have lost the credit history. If you have paid on time, you might consider keeping at least one credit off CCC and pay separately.

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Should Anyone Use a Credit Counseling Service?