Deck Chairs, the Titanic, and Me

May 1, 2006 8:05 AM

What actually happens when one goes through credit counseling and/or debt consolidation? I'm in an ugly mess and I'm scared--everyone tells me it's not that bad, but that's only in comparison to horror stories. I see that it's not getting better anytime soon. Details inside--any practical advice is appreciated!

I'm looking at $15k in credit card debt. Some of this was probably unavoidable. Some of it was me stupidly living beyond my means. Every time in the last two years I've thought things would improve, they don't. I don't make much money; I can say that will improve someday in the next couple years, but I couldn't say precisely when.

At the moment, I have pretty good credit. My debts look like they may soon be outside of my ability to pay. I'm also looking at the potential for seasonal unemployment for a couple months here (I substitute teach), and while I'm looking hard for something to cover that, I'm concerned about the worst-case-scenario.

About a month & a half ago, I goofed up and failed to make a credit card payment (first time ever, I simply thought it was done when it wasn't) and now I've been nailed with a 30.34% APR on that $6500 balance. I already asked if there was any way to change that back, and the card company said no. Obviously it's time to roll that over to someplace else.

The other credit card is nearing $8k, and I've got a remaining $500 on a Firestone card... with all this together, I've decided to just go for counseling and/or consolidation.

The service I called sent me a budgeting sheet and asked me to have that ready when the counselor calls me in a couple days. Clearly I need to tighten my belt and engage in more disciplined living, but somehow that alone doesn't sound like it'll make everything better.

What can I reasonably expect? I've heard of people having debts reduced and/or eliminated, but that sounds like a pipe dream and it's usually in regards to people in worse situations than mine. Much as I wish someone would wave a magic wand and make my debts go away, I doubt that's gonna happen.

Oh. And I'm horribly embarrassed by all this, because I used to think I'm a responsible person. Duh.

posted by scaryblackdeath to work & money (34 comments total)

30.34% APR on that $6500 balance

I just wanted to say that's disgusting. I don't know what the technical legal definition of usury is, but that looks an awful lot like it to me.
posted by ChasFile at 8:11 AM on May 1, 2006

Working 2 nights a week in a gas station will net you $5642 a year where I live. When my debts got too be too high, I worked at one. Just quit yesterday. It was hell, but it's taught me to be a better spender! You could be completely out of debt in a couple of years and still have the perfect credit record. Plus most crap jobs like that are starved for employees, they'll be happy to give you lots of hours during your time off regular work.

Just an idea, since your debt isn't ridiculously unmanageable...
posted by shepd at 8:13 AM on May 1, 2006

I have no experience with credit counseling services. I do have experience with the sort of debts you describe.

In addition to whatever other courses you pursue, please go to the library and borrow Dave Ramsey's Total Money Makeover, as well as Your Money or Your Life by Dominguez and Robin. Read them. Learn them. Live them.

(There's a YMoYL-related site called The Simple Living Network.)

Don't brush off this advice. It can literally help you turn your life around.
posted by jdroth at 8:15 AM on May 1, 2006

I've guess you've heard this but going through debt consolidation/counseling basically has the same effect on your credit as a bankruptcy, only you do not get the consumer protections given to you by bankruptcy. So you may want to rethink this. I have actually had to do Chapter 13 bankruptcy recently from a medical bill (yeah, only in the U.S.) and I can assure you it does not wreck your life -- I've had no problems getting utilities, adding bank accounts, and so on, and my credit score rebounded quickly after the filing. Of course it will be hard to get big loans but that's just as true if you have massive debt, consolidation, etc.

Also you should head over to the creditboards.com website and do research there before doing anything.
posted by zek at 8:15 AM on May 1, 2006

30.34% APR on that $6500 balance

Would you mind sharing the name of the bank that's doing this? I'd like to avoid them for any future banking business I may have.
posted by deadmessenger at 8:24 AM on May 1, 2006

I was in your shoes. I had about the same amount of credit card debt from combined debts from being in a car accident and then planning a wedding that never took place.

I went through Genus Credit Management and was very happy with them. I did a budget worksheet and had a couple of phone conversations with one of their reps, and they worked with my creditors to negotiate very small or no interest payments. (out of about a dozen creditors the only one who wouldn't "Play Ball" was Sears, actually, so we sorted out the payments so they were paid off as quickly as possible). My payments were reduced from about $1000 per month down to $365 per month, which I could easily handle.

I was their client for 67 months, ending within the past year. During that time I bought two different cars (one, then that one died, then a second one), and a house. I learned to live without credit cards, although they did let me keep my Visa debit card that is attached to my checking account. I can't say that I'm now able to budget any more than I was when I started, but not having all the debt hovering over me is a huge, huge relief.

Do it and don't worry. Fixing this problem is going to be more simple than you think. My email is in my profile if you want to ask questions or talk "off line"
posted by anastasiav at 8:25 AM on May 1, 2006

Keep in mind that although credit counseling centers try to give the impression that they have your best interests in mind, they are funded by credit card companies who don't want you to declare bankruptcy. That's not to say that they can't provide a useful service; my understanding is that you can often get your interest rates lowered quite a bit more when you go through a CCC than you would ever be able to do on your own.

However, since you say your credit is pretty good, is there any possibility that you could transfer all your debt onto a low interest rate card (and get a part-time job so you can make a dent in it)? That would have a far less deleterious effect on your credit score.
posted by amro at 8:26 AM on May 1, 2006

Thanks for the info Anastasiav - helpful for all of us.
posted by k8t at 8:31 AM on May 1, 2006

Are you doing this counseling over the phone or are you meeting someone in person? Is the debt counselor an accredited Consumer Credit Counseling Service? If there is a GreenPath Debt Services in your area, I would recommend you schedule an appointment with them.

I have been through what you are talking about and I feel for you. It is tough times. You will be able to pay this stuff off, but you will need to do several things first. I would say that Number 1 is temporarily stop using the credit cards. You can get the late payments to stop and you can negotiate better fixed interest rates, but you can't hit a moving target. Cash is your friend. If that one card is at 8K, stop it there and work on making payments every month. It will take you years, but this is a debt you owe and you clearly feel some responsibility to repay it.

"somehow that alone doesn't sound like it'll make everything better."

Your credit counselor will help you determine how much you can afford to pay without making you homeless, and believe me it will be embarassing to go through the details of how much you spend on laundry detergent and food every week, but it's one of the only ways to "go legit" and get a handle on your debt. Stopping the late fees and annual fees and negotiating a lower rate will help, but ultimately the monthly payments will have to come out of your pocket. The only way to get these debts "eliminated" is to pay them off (you can negotiate a settlement payoff that is less than the total amount owed) or declare bankruptcy.
posted by mattbucher at 8:36 AM on May 1, 2006

Is Zek right?
posted by k8t at 8:39 AM on May 1, 2006

Is there any way to do credit counceling WITHOUT going through the embarassing stuff like how much you spent on laundry soap?
posted by k8t at 8:42 AM on May 1, 2006

k8t -- I like to think I am, but who knows. If there's something specific you wanted to address I'd be glad to clarify it.
posted by zek at 8:50 AM on May 1, 2006

My wife and I went through the same thing. Our experience with the credit counseling service was a joke. For our $300 a month that we were paying them to deal with creditors, they took some off the top (which is fine as long as they're doing something) and the creditors kept calling as if they'd never heard of the credit counseling service. I demanded to see call logs or documentation of what creditors they contacted which they couldn't provide. I showed up at their office and physically threatened the "owner." I got us out of the contract, got a small refund and learned a couple of things:

1) If they claim they can get your interest rates lowered, ask them how and ask for it in writing. Find out who they spoke to and when. Get it on paper.

2) Find out their fee (flat or percentage of your monthly payment).

3) If the office has wood paneling that even your grandpa would laugh at, walk away.

This was in 1997 and I know that that industry has undergone some reform but be careful.
posted by KevinSkomsvold at 8:52 AM on May 1, 2006

k8t -

Zek is right, at least in my experience. If you go either the credit counseling route or the chapter 13 route, you will not be able to buy a house for a few years, and your interest rates will be higher for things like car loans; if these things are not an issue, then you should be OK.

Is there any way to do credit counceling WITHOUT going through the embarassing stuff like how much you spent on laundry soap?

Probably not. The reasoning behind doing this is to figure out where your extra money is going, so that money can be rechanneled to paying your debt off faster. In my experience, it is not done judgmentally - they don't care *why* you buy the $9 laundry soap, they just want to know where your money's off to when it leaves your bank account.

scaryblackdeath -

An important thing to remember in this process, and one that people had to remind me of when i did it, is that you're not the only one in this situation. There are ways out of it, but beating yourself up isn't one of them.

Focus on how to solve the problem at this point, and don't worry so much about how you got here - once you get a solution in place, it'll be easier to see how you can make the changes you need to make in order to never be in this position again. I did it, and it took several years, but once I had my plan in place, things really became a lot less dire and I was more easily able to figure out my next moves.

Good luck!
posted by pdb at 8:55 AM on May 1, 2006

For those who asked about that APR--it's a Visa from Bank of America. My eyes bugged right out of my head when I opened up that credit card statement yesterday. I'm not kidding, either, this is the first and only time I've ever dropped the ball completely on a payment, and I owned up to it as soon as I realized.
posted by scaryblackdeath at 9:15 AM on May 1, 2006

Thank you for the advice (and anyone else who wants to comment, PLEASE feel free). I realize this is going to take years, and I'm okay with that; I just don't want it to ruin my life along the way.

So debt consolidation/counseling hurts your credit as much as bankruptcy? I didn't know that. I suspected, but I hadn't found anything telling me such.

Also, does the new bankruptcy law make it a non-option these days? I hadn't contemplated it, but it doesn't hurt to know about how it works.
posted by scaryblackdeath at 9:17 AM on May 1, 2006

Deadmessenger, a lot, if not most credit card companies charge "universal default rates" now.

"GE Select Titanium MasterCard, issued by Bank One's First USA.........Pay late twice in any six-month period and an APR of 19.99 slams into place."

Merrick Bank will charge up to 35%
Citibank and Providian will get you for up to 29.99%

Article
Article
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posted by whoda at 9:24 AM on May 1, 2006

Credit counselig doesn't hurt your credit QUITE as badly as bankruptcy, but it hurts it pretty badly. And your credit score rebounds quickly from bankruptcy; a person with no debt who by law can't declare bankruptcy for another 7 years can actually be a decent credit risk.

I did go through credit counseling for about $50,000 worth of debt, and the counselor did help tremendously geting the interest and payments reduced. I will say that the #1 thing that will help you is to increase your income by any means necessary. The greatest proportion of wealth-building power comes from increases in income, not from cutting expenses.
posted by kindall at 9:29 AM on May 1, 2006

If I was in your shoes I would do the following.

1) Destroy those credit cards.
2) Take a 2nd part-time job to help speed up the recovery process.
3) Get a low interest bank loan and pay off the credit cards since the banks interest rate *has* to be lower than what the credit card companies are charging you.
4) Once you have the loan, cancel the cards all together.

If you get a 2nd job right away you will be able to show the bank that you have a higher income and it should be easier to get a loan.

I cannot think of any bank that would not approve of someone paying them interest instead of a credit card company.
posted by cbushko at 9:29 AM on May 1, 2006

going through debt consolidation/counseling basically has the same effect on your credit as a bankruptcy

This is untrue.

From here:

Here’s another controversial topic. You may have heard that credit counseling will trash your credit report or even that it’s “worse than bankruptcy.” Neither is really true.

Credit counseling may have some effect on your credit, or it may have none at all. Some lenders may not want to do business with you after you've completed your plan, but others will.

Contrast that with a bankruptcy, which is viewed by almost all mainstream lenders as a huge negative on your credit report. These lenders, who prefer to deal with consumers with good credit, typically won’t do business with you for the 10 years the bankruptcy remains on your file.
posted by Otis at 9:42 AM on May 1, 2006

Sorry to post this, as it does not answer the original question, but it addresses other things brought up in this discussion. Avoiding a bank that has a credit card with a default APR of 30%+ is nigh impossible. They all set your APR if you are in default to prime plus 20% or more. It's not legally usury because the companies operate out of states that do not have usury laws, and the US Supreme Court ruled in 1978 that a bank could impose, nationally, the interest rates allowed in the state in which it operates from. Most all banks operate from states such as South Dakota which eliminated its usury restrictions to attract such business.
posted by zsazsa at 9:47 AM on May 1, 2006

I used a counseling service many years ago. Make sure you use a reputable company. Mine was CCCS and was a non-profit agency (although heavily financed by credit card companies with THEIR interests in mind). They charged a low, flat monthly fee (was $8.00 at the time). They got all credit card co.'s except one to drop all interest rates to 0% and stop collection as long as I stayed with the program.

I had to cut up all credit cards in front of the counselor and write a monthly budget. She said at the end of the program, the agency would help me rebuild my credit and write letters of reference for future loans. Not sure if going to them hurt my credit as it was already destroyed ;)

I resolved some debt by accepting an offer from one of the creditors for about 40 cents on the dollar. They said they would also erase it from my credit - Lies, all lies.

Side note: years later I have painstakingly rebuilt my credit and am now deluged with loan/cc offers (some with very good rates). While my brother who claimed bankruptcy bought a house one year after filing - what up with that?!?
posted by JimBobNoPants at 10:24 AM on May 1, 2006

If you have decent credit, you might consider taking advantage of those 0% offers everyone gets in the mail. It really helped us pay off cc debt more quickly, as all of the payment went toward principal. There is sometimes a fee for a balance transfer, but if you look carefully there are some with no balance transfer fees. We just had to watch *really* carefully so that we could apply for new ones when the one-year time limit was up on the old ones. We did this a few times and it made our $400 a month payments go a lot farther.

And second the motion for seeking part-time employment. Depending on your education and people skills, consider waiting tables at a nice restaurant (good cash every night), or tutoring (sometimes up to $40 an hour).

Do not buy into the guilt that comes with this-- choose to believe that you CAN get out of this and that you WILL. It can be done, and you can do it and maintain your dignity.

Consider meeting with a financial planner or the like to create a workable budget. One other tip-- my sister had a hard time curbing her spending, so she lived off of cash-only for a while. At the beginning of the month she took out the budgeted amount for groceries, gas, etc., and put them in envelopes. She kept a credit card in her wallet for emergencies, but only for emergencies. If she didn't have cash with her, she didn't buy. It helped her immensely.

Good luck, and kudos for addressing it now before it's worse.
posted by orangemiles at 10:30 AM on May 1, 2006

My husband (who works in real estate) would tell you if there is any way NOT to do credit counseling, don't. Apparently it makes it really hard to get any kind of credit in future. Since your credit isn't that bad now, that might turn out to be a really bad thing for you when it comes to buying a house or a car (he's worked in car sales too.)
posted by konolia at 10:31 AM on May 1, 2006

This isn't directly responsive to your question about what it's like to work with these services, but you might find this debt reduction calculator of use.
posted by WCityMike at 10:54 AM on May 1, 2006

30.34% APR on that $6500 balance

Would you mind sharing the name of the bank that's doing this? I'd like to avoid them for any future banking business I may have.

My husb. and I both have very good (if not excellent) credit, and always pay our bills on time. One day, with no fanfare, we got a credit card bill from Chase where the rate had been jacked up to about that much, from less than 10% normally. Apparently they had just noticed a "potentially negative" item on our credit reports from 2001 (which credit reports also included our disputing that item). We called Chase and basically went medieval on their ass. They lowered the rate to less than it had been (!) and credited us for the interest that had accrued at 30%.

My point is, I wouldn't be surprised if scaryblackdeath's story involved Chase. Do not let these people push you around, even if you're viewed as not the greatest credit risk.
posted by scratch at 11:23 AM on May 1, 2006

So debt consolidation/counseling hurts your credit as much as bankruptcy? I didn't know that. I suspected, but I hadn't found anything telling me such.

Not my personal experience. My credit was bad when I started, but not bad enought that I wasn't still able to get a credit card :-) My credit score was in the 650 - 699 when I entered the agreement and was in the 600 - 649 range when I bought the house three years later. I did buy the house with my partner, but my credit score wasn't bad enough to move our interest rate around very much (although I will say that this was at the time when interest rates were at rock bottom anyhow.

Fees: Through Genus, I paid $3 per creditor per month. At the highest, therefore, I was paying $36/month in fees, and that went down as assorted smaller bills were paid off.

I just don't want it to ruin my life along the way.

What ruins your life, IMHO, is the feeling like you're working and working and working and can never get ahead. You have no spare cash because it all goes to pay bills, and you might even be getting calls from debt collectors, etc.

At no time in any of my loan-getting adventures (again, one house (with partner) to auto loans (through a credit union) did anyone ever even say anything about my being in a program. It just never came up. I honestly think that Genus saved my life ... had I not gone into the program the house would have been a pipe dream because I would never have been able to save enough to make the down payment, and when my car died (threw an engine rod on Christmas eve) I would have been out of luck in getting a replacement car.

Its not scary. No one ever asked me why I was spending $9 on laundry soap -- instead, they asked me to estimate my monthly expenses ... rent, heat, electric, food, clothing, entertainment, student loans, etc ... and worked with me to make sure that I could pay for all those things and also pay off my debts.

The think that sticks with me, though, is how nice everyone was, and how normal they made it all seem. I had two cards that were up over 20% each of which had several thousand dollars on them -- they reduced both of these to 0%.

The idea of getting an extra job, etc. is fine, but the bottom line is this: If you don't have a life, you're going to be unhappy. For different people, having a life means different things. For me, working a second job was never ruled out (although, weirdly, its only now, that those debts are paid off, that I'm working two jobs to make ends meet) but I already worked a schedule that made it tough to pick up a second job and be a reliable employee.

I'm frankly puzzled as to why there is so much resistance here to you going forward with this process. Credit counciling is easier and cheaper than Bankrupcy, and you end up feeling better about yourself (or at least I did). Plus -- and here's the key point -- you do end up paying back your entire debt. you just don't pay the interest (or pay very little). Provided you choose a reputable, non-profit organization there is no risk.
posted by anastasiav at 1:44 PM on May 1, 2006

I almost went to one of those consumer credit counseling places in 2000. It was part of the national CCCS chain. I had two credit cards, each in the $1,500 range, an unpaid medical bill, student loans, a Shell card, and other assorted debt, coupled with repeated late payments, that put my credit rating in the crapper, and I wanted to finance a car with a decent rate.

I was in college at the time, with two years to go, and I thought I was totally screwed.

On a whim, I went, instead, to my friendly neighborhood credit union, which told me to buck up and pay down the credit cards, helped me get a signature loan to cover the hospital bill (which automatically came out of my account and was paid off in less than a year). Meanwhile, I bought a beater car (i needed a car for an internship, otherwise, I'd have gladly taken the bus/bike), finished school, paid off other debts as soon as I could, and within a couple years, everything that at the time seemed like a looming disaster was completely gone.

Now, a few years later, I have no short term debt, own my own home, have a perfectly servicable used pickup truck with a respectable APR, and, thanks to paying my bills on time for a few years, my credit score is in the high range.

Here's what I learned: Everything seems much worse than it really is, and the seemingly endless time it will take to pay off debt goes by faster than you might think. I'd see what you can do to a.) get help with a budget, from a credit union or other nonprofit financial service, but not from a CCC -- they take a fee off the top, and from what I hear, it's only getting higher. b.) get a better job than substitute teaching. Do you have a teaching license? Lots of cities would kill to hire good, qualified teachers. c.) see if you can work out something with those credit card companies so they stop compounding your debt. I've not tried this myself, but I've heard that it is possible to get them to do what the CCCs say they can do -- close the account, stop adding interest, and just let you pay it down -- with just a simple phone call.

Good luck.
posted by M.C. Lo-Carb! at 1:49 PM on May 1, 2006

30.34% APR on that $6500 balance
As zsazsa and others have pointed out, this is now common practice with banks and card companies. Even more odious, is that they can hit you with this even if you are late paying an unrelated fee. Like the electric bill. Or your mortgage. Late with the mortgage payment? Your VISA can get jacked-up to 30%APR.
It was all part of that credit/finance/bankruptcy "reform" that our congresscritters happily passed last year.
posted by Thorzdad at 1:50 PM on May 1, 2006

I have to chime in to put in a good word for credit counselling here. I went with AmeriDebt several years ago, which itself went under and was taken over by a company called MMI. I had a revolving balance of nearly $15k while in graduate school and I just wasn't able to keep up, so I looked into credit counselling as pretty much my only real option.

I had some minimal start-up glitches with AmeriDebt (a screwed up account number which kept one of my accounts out of the program for a year), but for several years, no problems. Because of the state I lived in at the time, the company fee was capped at $20 per month. I faithfully made my payments every month and after a year saw a real difference in my balance. The interest rates on all the accounts were drastically dropped (although never to 0), and just knowing that everything was going to get taken care of took a huge weight off.

Then AmeriDebt hit some fairly substantial problems, and the company's business was taken over by MMI. I cannot say enough good things about MMI. I have a personal counsellor who oversaw the transfer of my information from one company to the other (by the way, MMI is not-for-profit) and who checks in with me periodically to see how things are going, update balances, and redistribute funds as creditors get paid off. I have a direct line to my counsellor. It's been about four years overall, the last year or so with MMI, and I will be paid off at the end of this year. In the meantime, I have qualified for credit cards and personal loans as needed, with no detrimental affect on my credit rating. This could be because it was already pretty bad, but I've actually seen an improvement.

Having said all of that; if your credit is good right now and this is simply a case of one missed payment and a few months of decreased income, I'd suggest NOT going into counselling unless you really feel you need the reduction in interest rates that route provides. I'd call the creditors, cancel the accounts, and set up a regular monthly payment through them until everything is paid off - paying as much extra as you can manage until they're gone. That's what I would have done if I'd been able, but I had already screwed up too badly to go that way.

Whatever you decide to do, it's going to pinch, but you just have to decide to do it, and then stick with it until it's done. And one last piece of advice: as your balances go down, you'll see credit card offers start to come in - GET A SHREDDER and shred them on site - don't even open the envelopes.

Good luck; you know you can do this.
posted by jennaratrix at 2:13 PM on May 1, 2006

If I were in your position, I would be looking for a credit union to join, getting a personal loan from them at some reasonable interest rate for the total amount I owed on my credit cards, paying off the credit card leeches, and cutting up my cards.

There's no incentive for credit unions to screw their customers over for the benefit of their shareholders; in a credit union, the customers are the shareholders.

I've done all my banking for the last twenty years with the same credit union, and I can't recommend the model highly enough.
posted by flabdablet at 4:46 PM on May 1, 2006 [1 favorite]

I just got signed up with a credit union today.

They told me that, because my debt-to-income ratio is so high, they likely won't be able to help me with either a credit card transfer OR refinancing my car loan.

:(
posted by scaryblackdeath at 4:51 PM on May 1, 2006

How much is your car worth? Could you sell it, kill the car loan, buy a shitbox to replace it, and thereby swap your present car-related debt repayments for increased car maintenance costs?

That would take down your debt to income ratio quite nicely.
posted by flabdablet at 5:46 PM on May 1, 2006

Hopping in to say I also used Genus and had a pretty excellent experience with them.

A few tips:

1 - Some companies, like Citibank, will report to the 3 agencies that you are in credit counseling; none of the other companies did. However, once the card is paid off, you can send a letter to the three agencies to make sure they report the card as "closed" and the credit counseling listing will drop off of your reports.

2 - Make sure that they change all of your payment dates with the companies, because if their payment date is different than the cards' payment dates, you may find a 30 or 60 days late notice on your credit report that isn't your fault; I had one of these and it took me some time to get it cleared up.

3 - Genus will waive their fee - just ask them to. They are not-for-profit and have this built in to the plan.

This isn't for everyone, but we got rid of over $50K of debt in about three years - and it was WORTH IT.

And, FWIW, in response to the person whose husband is the realtor and said to avoid this? My credit scores are now over 800 and we bought a house effortlessly three years ago.
posted by OhPuhLeez at 10:25 AM on May 2, 2006