Credit Counseling /Debt Reduction

[ThunderAeroI]

Does anyone know reputable credit counsels or debt consolidation organizations?

I'm looking to consolidate the family debt into one loan but our credit isn't very good.

What ideas are out there?

Thanks.

 

[Robert Maxwell]

Have you tried talking directly with your creditors to negotiate lower payments? That's usually a good thing to try before you go for credit counseling.

Also, credit counseling doesn't really consolidate your loans. Usually, the way it works is, you send the credit counseling company a monthly payment, which they then distribute to your creditors, but it's not a genuine consolidation because the accounts with your creditors continue to exist separately, so the credit counseling service is more of a convenience than anything else.

How good your credit is has no effect on what kind of credit counseling you can get--it's really designed for people with bad credit!

What you could look into is taking out a separate loan with a lower rate to pay off your debts and then have a single, lower payment to worry about. If you are with a bank or credit union you could ask them about this.

In any case, if you go with credit counseling, make sure you use an agency vetted by the government.

 

[ThunderAeroI]

Have you tried talking directly with your creditors to negotiate lower payments? That's usually a good thing to try before you go for credit counseling.

Also, credit counseling doesn't really consolidate your loans. Usually, the way it works is, you send the credit counseling company a monthly payment, which they then distribute to your creditors, but it's not a genuine consolidation because the accounts with your creditors continue to exist separately, so the credit counseling service is more of a convenience than anything else.

How good your credit is has no effect on what kind of credit counseling you can get--it's really designed for people with bad credit!

What you could look into is taking out a separate loan with a lower rate to pay off your debts and then have a single, lower payment to worry about. If you are with a bank or credit union you could ask them about this.

In any case, if you go with credit counseling, make sure you use an agency vetted by the government.

What should be my approach with the credit card companies?

Highlight my good payment record, never missing a payment. What should I tell them or ask for specially to have the total amount in debt and payment per month changed if possible.

 

[CorporalClegg]

Also, using one of those companies can really kill your credit--in some cases even more so than defaulting or filing for bankruptcy.

 

[Robert Maxwell]

Have you tried talking directly with your creditors to negotiate lower payments? That's usually a good thing to try before you go for credit counseling.

Also, credit counseling doesn't really consolidate your loans. Usually, the way it works is, you send the credit counseling company a monthly payment, which they then distribute to your creditors, but it's not a genuine consolidation because the accounts with your creditors continue to exist separately, so the credit counseling service is more of a convenience than anything else.

How good your credit is has no effect on what kind of credit counseling you can get--it's really designed for people with bad credit!

What you could look into is taking out a separate loan with a lower rate to pay off your debts and then have a single, lower payment to worry about. If you are with a bank or credit union you could ask them about this.

In any case, if you go with credit counseling, make sure you use an agency vetted by the government.

What should be my approach with the credit card companies?

Highlight my good payment record, never missing a payment. What should I tell them or ask for specially to have the total amount in debt and payment per month changed if possible.

Interest is what kills you on credit cards. Do you really want to eliminate your debt? Then ask them if they can close your accounts and give you a lower rate (and no fees) while you pay off the balance. If they don't want to play ball, tell them you won't be able to make your payments for much longer under the current terms, and if it comes down to it you'll just walk away and default. If you can accept the hit to your credit, make good on the threat and skip paying for a couple months. That tends to make them more willing to negotiate, however it will show up on your credit report as missed payments.

It depends on whether you want to play the long game with your creditors. Generally speaking, they may not believe you're having trouble making payments until you actually stop making payments. Likewise, they are under no incentive to help you through a credit counselor unless you've become delinquent and they fear you will simply default.

I know it's not fair but you're actually penalized for having a good history, in that they will be less willing to negotiate. If you do have good credit, then rather than deal with your creditors, look into getting a loan from your bank or credit union--an unsecured loan, a home equity line of credit, or whatever. But use that money to pay off the credit cards and close the accounts so you won't be tempted to run them up again. Then, make the (hopefully lower) payments on your new, consolidated loan.

Credit counseling is best for people who have already messed up and missed payments and have collectors calling. If you haven't reached that point, you have more attractive options, such as more favorable loans.

Still, it can't hurt to at least call your creditors and ask for better terms. Minimally, you can threaten to close your account if they won't give you a better deal. There are business reasons that credit card companies like accounts to be kept open, and if you close your account they basically lose you as a customer, which they shouldn't want if you have a good history.

 

[JoeZhang]

Consolidated loans are often a bad idea unless you are sure that you don't then used the freed up credit to increase your debits, so think hard if that's the route for you.

 

[Guartho]

Some more negatives about consolidation loans.

 

[Robert Maxwell]

Some more negatives about consolidation loans.

This is why I said you have to get rid of the credit cards after they're paid off. Obviously, you would want the consolidated loan to be paid off in a reasonable period of time. That's why I suggested going with your local financial institution, which is likely to give you a better rate than credit cards.

Also, fuck Dave Ramsey. I like how the solution touted there amounts to a sales pitch. Classy. Maybe his plan really works, but I am extremely annoyed at the way any discussion of debt turns into: "Oh, you've got debt problems? GO BUY DAVE RAMSEY'S STUFF!" Shit's like a fucking cult.

I'm trying to offer advice here without selling anything. There are many ways to deal with debt, and certainly his plan is one alternative, but it's not like he can magically make your debt go away. You still have to pay it, unless you're going to file bankruptcy. And under the current bankruptcy rules, I believe you are required to go through a Chapter 13 repayment plan first, unless you meet certain low income criteria. So, no matter how you slice it, you have to pay up.

ThunderAeroI, my advice from before stands. But the most important thing is to be disciplined about it. Don't pay your balances down and then run them up again. That won't accomplish anything. If you get a consolidation loan, close the credit accounts. If you go to a credit counselor, have them get your credit accounts closed. This is critical.

 

[Guartho]

Also, fuck Dave Ramsey. I like how the solution touted there amounts to a sales pitch. Classy. Maybe his plan really works, but I am extremely annoyed at the way any discussion of debt turns into: "Oh, you've got debt problems? GO BUY DAVE RAMSEY'S STUFF!" Shit's like a fucking cult.

Here's Dave Ramsey's whole plan On his own web site for free. The radio show is also free. The condensed 1-hour podcast of the radio show is also free.

ThunderAeroI, my advice from before stands.

I don't know why you feel the need to post that your advice stands in response to my link. It's not like it disagrees with your advice in any way. It was merely more supporting arguments.

But the most important thing is to be disciplined about it. Don't pay your balances down and then run them up again. That won't accomplish anything.

For somebody who say "Fuck Dave Ramsey," you sure do agree with him a lot.

 

[Robert Maxwell]

Also, fuck Dave Ramsey. I like how the solution touted there amounts to a sales pitch. Classy. Maybe his plan really works, but I am extremely annoyed at the way any discussion of debt turns into: "Oh, you've got debt problems? GO BUY DAVE RAMSEY'S STUFF!" Shit's like a fucking cult.

Here's Dave Ramsey's whole plan On his own web site for free. The radio show is also free. The condensed 1-hour podcast of the radio show is also free.

ThunderAeroI, my advice from before stands.

I don't know why you feel the need to post that your advice stands in response to my link. It's not like it disagrees with your advice in any way. It was merely more supporting arguments.

But the most important thing is to be disciplined about it. Don't pay your balances down and then run them up again. That won't accomplish anything.

For somebody who say "Fuck Dave Ramsey," you sure do agree with him a lot.

That's because his philosophy is "all debt is evil and should be done away with ASAP," not "using debt responsibility can be a useful tool in your financial toolbox."

 

[Lindley]

I agree. Even if you have no intention of making purchases you can't immediately pay for, you're still better off putting the occasional charge on a credit card instead (and not one that's really a debit card in disguise). Pay it off entirely every month and don't incur interest, sure. But doing this still establishes a credit history early which can be very helpful down the road.

Also, renting a car is easiest if you have an actual credit card. They're surprisingly reluctant to take debit.

 

[Guartho]

That's because his philosophy is "all debt is evil and should be done away with ASAP," not "using debt responsibility can be a useful tool in your financial toolbox."

The people that tend to buy books called "The Total Money Makeover" or classes called "Financial Peace University" haven't exactly demonstrated a tendency to responsibly use a useful tool in their financial toolbox.

BTW, Dave does not say "all debt is evil and should be done away with ASAP." He often advises people that a 15-year fixed rate mortgage with a truly manageable payment is an OK debt to have. True, he always tells them that he personally wouldn't do it, but he acknowledges that it's a pretty safe debt to have.

 

[Robert Maxwell]

That's because his philosophy is "all debt is evil and should be done away with ASAP," not "using debt responsibility can be a useful tool in your financial toolbox."

The people that tend to buy books called "The Total Money Makeover" or classes called "Financial Peace University" haven't exactly demonstrated a tendency to responsibly use a useful tool in their financial toolbox.

BTW, Dave does not say "all debt is evil and should be done away with ASAP." He often advises people that a 15-year fixed rate mortgage with a truly manageable payment is an OK debt to have. True, he always tells them that he personally wouldn't do it, but he acknowledges that it's a pretty safe debt to have.

But it would seem the OP isn't in serious debt trouble--no missed payments, no trouble making the payments (as far as I can tell), just looking for options to reduce/eliminate the debt load. Ramsey's strategy is a bit overkill in that case.

 

[Guartho]

But it would seem the OP isn't in serious debt trouble--no missed payments, no trouble making the payments (as far as I can tell), just looking for options to reduce/eliminate the debt load. Ramsey's strategy is a bit overkill in that case.

It is true that some of the stuff in the last paragraph of the link I posted is overkill for the OP, but two things.

1. I didn't link it for the last paragraph. I linked it for the facts about consolidation loans in the previous paragraph. I should have probably put a disclaimer that there was a mini sales-pitch at the end.

2. I assume the "overkill" parts you refer to are the "Get an extra job" and "most people need help" parts. Those are in there not for the OP, but for the people that will read the article that are in serious trouble. In Dave's defense, I'm confident that if the OP had called Dave's show for instance, Dave wouldn't have told him he needs a second job. He would have left it at "The way you get out of debt is by changing your habits. You need to commit to getting on a written game plan and sticking to it. Live on less than you make and start paying off the debt"

I kinda get a vibe from you that your main problem with Dave Ramsey is that he makes money from his common sense advice. I don't know if that's really what you're saying or not, but I do know a lot of people do have that beef with him.

I bring it up because I want to point out that Dave Ramsey in no way hides that he's packaging common sense and selling it. He often says things like "The world we live in today is pretty strange, It is one where common sense has become a marketable commodity."

When you pay the $100 to go through Financial Peace University (Less than 1 month's finance charge on the average credit card balance btw) You're not really paying for the common sense advice. You're paying for the funny guy that holds your attention and makes you laugh while you get the common sense advice.

I do agree that most people have not lost control to the point that they need Dave Ramsey.

But I also think that most people would learn something in the $20 book or the $100 class that would give them a nice return on the investment of that money and their time.

I mean, just eliminating the myth that keeping your mortgage saves you money by reducing your taxes will pay for the course several times over, even if you pay the full retail price for it.

 

[Lindley]

I mean, just eliminating the myth that keeping your mortgage saves you money by reducing your taxes will pay for the course several times over, even if you pay the full retail price for it.

Is that just because deductions aren't as good as credits, or is there more to it?

 

[Guartho]

I mean, just eliminating the myth that keeping your mortgage saves you money by reducing your taxes will pay for the course several times over, even if you pay the full retail price for it.

Is that just because deductions aren't as good as credits, or is there more to it?

It's because the interest you pay the bank is just about guaranteed to be more than the taxes you don't pay by having a mortgage. The common example is with a 75k earner who pays $10k a year on their mortgage. You send the bank $10k that keeps you from paying the IRS $25k.

Obviously you only get that $7,500 annual savings once you've paid off the house which most people aren't going to be able to just write a check and do. But the point isn't "Write a check and do it now" (unless of course you really could). The point is "Don't let the tax deduction fool you into not making paying off your home a priority"

In my case I pay the bank about $2500 and I don't know what that saves me from paying the IRS right now, but I know it's less than $2500 because $2500 is half of my entire tax liability for last year.

 

[Lindley]

Sounds like it's just because the interest is a tax deduction rather than a tax credit then, yeah.

 

[Robert Maxwell]

I mean, just eliminating the myth that keeping your mortgage saves you money by reducing your taxes will pay for the course several times over, even if you pay the full retail price for it.

Is that just because deductions aren't as good as credits, or is there more to it?

It's because the interest you pay the bank is just about guaranteed to be more than the taxes you don't pay by having a mortgage. The common example is with a 75k earner who pays $10k a year on their mortgage. You send the bank $10k that keeps you from paying the IRS $25k.

Obviously you only get that $7,500 annual savings once you've paid off the house which most people aren't going to be able to just write a check and do. But the point isn't "Write a check and do it now" (unless of course you really could). The point is "Don't let the tax deduction fool you into not making paying off your home a priority"

In my case I pay the bank about $2500 and I don't know what that saves me from paying the IRS right now, but I know it's less than $2500 because $2500 is half of my entire tax liability for last year.

I don't view home ownership as a tax advantage. In fact, I would think anyone who buys a house for that reason hasn't thought it through. However, given the choice between handing over a rent check every month in exchange for a roof over your head OR paying toward a property you will eventually own free and clear, the latter makes sense if you can afford it, just for the sake of the security it provides. It is an asset you can then sell, borrow against, or use as a source of additional income (by renting it out.)

If you rent, then your financial options are a lot more limited.

 

[Guartho]

Oh absolutely! I hope no one takes my aside about mortgage deductions as advice to not own your home! That's the opposite of what I'm going for. After all, if you rent, you're probably paying that interest to your landlord's mortgage and your landlord is getting the IRS deduction. Worst of both worlds!

 

[treknoobfan]

Ok I do marketing for a consumer credit counseling company so I know quite a bit about credit counseling and how it effects your credit and ability to get credit.

Credit counseling is not debt settlement. With debt settlement you basically stop paying your creditors and in lieu of paying your creditors you start paying the debt settlement organization. The debt settlement organization usually takes a hefty upfront fee, and then they start putting aside your funds in hopes that your creditors will take a lump sum instead of charging off your account.

Here's the deal why debt settlement is kind of risky: 1) your creditors could sue you if you stop making your payments to them, 2) this adversely effects your credit rating and 3) some legal experts say you are essentially breaking the law if you stop paying your creditors.

Credit counseling on the other hand is less risky and a good non-profit credit counseling agency will not only help you take care of your debts but it will also help you set up a budget.

The thing about credit counseling it's really only for people who have a ton of credit card debt to the point that it's unmanageable. A good non-profit, credit counseling agency has existing relationships with banks and they will negotiate lower interest rates for you on your credit cards, get fees waived and help you pay off your debt faster.

Truth be told most of what a credit counselor can do, you can do yourself, so if you have the time and want to take care of your credit card problems on your own call up your creditors and negotiate lower interest rates and a payment plan on your own.

What most people don't know that the last thing a creditor EVER wants to do is charge off an account. So use that as leverage, and tell them that your under financial distress and you want to negotiate a payment plan and lower interest rates. Most banks, especially in this economy, will play ball with you vs charging off the balance, which comes up as a loss to their bottom line, and you know banks are all about their bottom line!