Can one escape debt counseling?
April 28, 2005 5:33 PM   Subscribe

Enrolling in a debt counseling program automatically cancels credit cards without warning. This is unacceptable. Is it possible to back out of the program and restore the credit card accounts? If not, does the debt program block the ability to get new credit cards? This is not an issue of wanting to live on credit cards, but instead to have a safety cushion in times of emergency fiscal need.
posted by anonymous to Work & Money (15 answers total)
The fact that somebody is in debt counselling strongly suggests that they haven't been using their cards as a "safety cushion in times of emergency fiscal need". Said "safety cushion" line sounds suspiciously like the shoulder devil winning over the shoulder angel. Said person should let the cards go, and not get any new cards.
posted by obiwanwasabi at 5:38 PM on April 28, 2005

It's a false dichotomy... someone shouldn't necessarily lose the "emergency use" benefit of credit cards just because he/she hasn't used them that way in the past.

I doubt you can get your old accounts back, and at this point you might have to sign up for secured cards (for which you need a checking account with an amount of money equal to your credit limit). I don't know if it's possible to shift your secured card to unsecured after a period of responsible use; that's an interesting possibility.
posted by rkent at 5:57 PM on April 28, 2005

The single best way to get out of debt is not to add more of it. Credit cards are debt, and the ability to use them is the path to more debt. You may find it annoying that a debt counseling program automatically cancels credit cards, but the programs know what they're doing.

Credit cards are not a safety cushion. They're a trap.

If you need a safety cushion, establish a savings account. Set aside $100 a month. Or $20. Or whatever you can. That's a safety cushion.

Credit cards are a trap.
posted by jdroth at 6:12 PM on April 28, 2005

I thought the whole point of debt counseling programs was that you're sort of admitting that you fucked up and are willing to do whatever it takes to resolve your debt. That in exchange for giving up certain liberties (i.e. the right to have an "emergency" credit card), you get lowered interest rates or whatever. But, of course, I could be wrong. Can't have it all, you know?
posted by elisabeth r at 6:13 PM on April 28, 2005

Closing credit card accounts may also end up giving you a higher ratio of utilization, which can, in turn, lower your FICO score. Try calling the credit card company directly and asking them to re-open the account; if it's within a few months, some companies will do it for you.
posted by Dr. Zira at 6:19 PM on April 28, 2005

[P. S.: Not sure how that would affect your agreement with the debt counseling company, so proceed at your own risk, but consider the negative effects of a high utilization ratio on your FICO score with the hit your score may take with the involvement of a debt counseling agency. ]
posted by Dr. Zira at 6:25 PM on April 28, 2005

to have a safety cushion in times of emergency fiscal need

You don't actually need to restore your old accounts to do this. You can open new ones. If you're really talking about emergency emergencies, one should do fine. You can get one without much effort.
posted by scarabic at 6:45 PM on April 28, 2005

I went through debt counseling a few years back. It's not all the big a deal, and the ramifications are few. Now I get offers for unsecured cards with high credit limits daily. Fortunately, I am now smart enough to be able to manage credit, having paid the price for my college-age naivete about predatory lending.

You'll really need to live without credit for a while. Get used to it. It'll be so much more helpful later on once you realize what it is to live within your means. If a true emergency arises, identify other sources you can use before borrowing money from an anonymous bank that wants to make a buck off of you. I mean, what's an emergency? Car breaks down, relative falls ill? Try to list family members and friends who could be counted on to help you through something like this. That's the kind of 'emergency credit' that everyone used until the 1960s. Interest rates are a lot better, too.

The only real emergencies in life are things that interfere with your ability to do your job; problems with your own physical health; a friend's or family member's illness; or an inability to provide for your basic needs for shelter, heat, utilities, and food. Figure out who or what you could turn to if any of those situations became dire...and then leave credit alone for a while.

The only way to "escape debt counseling" is to pay off what you owe. The debt counseling agencies are better at this than you are; they have negotiated lower interest rates from the companies you owe, and come up with a formula for paying off the highest-rate card the fastest while keeping the others in a holding pattern with lower payments. You can "buy out" your debt counseling by calling your account manager back and arranging to make lump-sum payments to individual creditors; this in fact may save you money in the long run, since you will not be paying finance charges that continue to accumulate as long as the debt is carried from month to month. But there is no other way to get out of the agreement than by paying off the debt.

I highly recommend reading Suze Orman's books, which really helped me get my head straight about financial priorities and the losing game of credit card debt.
posted by Miko at 8:00 PM on April 28, 2005

So, are you saying you signed up for a debt counseling service without knowing that it would "automatically" cancel your credit card accounts, and now want to get them back or get new cards? Or are you simply *considering* signing up for that kind of debt counseling service? The question isn't clear, which may be why you're getting kind of judgmental answers. If it was the former, you should never do something like that again without carefully understanding the fine print. If the latter, listen to the advice here and try living without that kind of absurdly expensive "safety cushion."

For what it's worth, I've lived without credit cards for 20 years. They really are a stupid, stupid trap designed solely to make huge profits for the credit card industry. If you've had problems with debt in the past, the best thing you can do is stay card-free for as long as possible. I can't imagine the trouble I'd be in if someone had slid me easy cash advances at 20% interest years ago.
posted by mediareport at 9:03 PM on April 28, 2005

I feel it's a bit extreme to lambast credit cards as a "stupid, stupid idea". I've had one for 7 years and never paid any interest (55 days interest free). Its credit limit is about half my monthly pay, so I can pay it off quickly if I do use it too much.

If I spend more than $5000 per year, I get my $55 annual fee paid for. For every $5000 I spend after that, I get points which can be traded for goods worth $50 from a catalog.

I'm just saying, it's not all bad.

For the record though, I live in Australia :)
posted by theducks at 9:54 PM on April 28, 2005

theducks, you are the exception, not the rule.

I got to thinking last night that if the original poster realy must have a credit card, perhaps an American Express card could do the trick. Yes, it must be paid off at the end of the month, but that still allows at least a one-month cushion to actually find the needed cash.
posted by jdroth at 5:36 AM on April 29, 2005

Thinking outside the credit card box, the pawn shop is the traditional source for that one-month needed cash cushion. 'Course you'd need some collateral to pawn.
posted by Rash at 10:01 AM on April 29, 2005

Enrolling in a debt counseling program automatically cancels credit cards without warning

I doubt this. First, credit card companies won't cancel credit cards without a direct request from the cardholder. I'd guess that most credit counseling agencies create form letters for this, but the cardholder (the person being counseled) still needs to sign them. Second, counseling programs don't behave identically (there are no federal regulations that spell out their procedures). So it's possible (albeit unlikely) that a program would agree to a client's request to keep a card open.

Is it possible to back out of the program and restore the credit card accounts?

Either a card has been closed (by the credit card company), or it has not. If it has, you'll have to appy for a new card.

Does the debt program block the ability to get new credit cards?

Nope - you may still be getting offers in the mail, and you're free to apply for new cards. It's quite possible, however, that your credit history files reflect (a) that you're in (or were in) a program, and/or (b) that creditors have agreed to accept write-downs (waiving or lowering interest payments, or whatever). It's quite possible that very few (legitimate) credit card companies would be interested in offering you a new card under such circumstances. (But again, there is no law here - just fairly standard behavior by people who want to be paid back if they lend you money.)

Which isn't to say that getting a new card is a good idea.

a safety cushion in times of emergency fiscal need

Generally, this is called a savings account. And no, I'm not trying to be snarky. Circumstances vary a great deal, so I can't offer very specific advice about what to do until you've built up one. (The old rule of thumb was to have savings equal to six months of expenses, then start putting aside for a house, retirement, kid's education, whatever.) I will say that I'd be charmed (and agreeable) if I had a friend in your circumstances who came to me, explained his/her situation, and asked me to act as an emergency savings account for a few years - I'd get $20 or $40 every month (incoming) and I'd only pay that out (and lend whatever else was necessary) if the friend had an emergency expense (from a short, hopefully preestablish) list - health, car accident, etc.

I also note that "emergency" expenses like car towing (breakdown) and car repairs can be turned into non-emergencies by (a) membership in AAA or similar, and (b) routinely setting aside money for the inevitable (unless one's car is under original factory warranty, which covers pretty much everything). (Which brings us back to a savings account.)

For many people, not having financial problems in the future (not your question, I admit) means giving up some things and changing others - eating out less (or not at all), reading library books rather than buying them, dropping a cable TV subscription, and so on. That's hard - it may seem unfair (compared to what others are able to do) and certainly requires discipline and learning new things. Having a credit card, under those circumstances, can be quite problematical.
posted by WestCoaster at 1:50 PM on April 29, 2005

Odds are that someone in a counciling program has already gathered enough late payments and too much debt/income to qualify for an Amex.

Suck it up and live without the "safety cushion." If you're really serious about needing it I would ask how much money you set aside every month for these possible emergencies. If it's non-zero you'll likely be in good shape if said emergency occurs. If it's zero then maybe you should consider

(1) how much of this concern is a rationalization
(2) if your definition of an emergency that needs said safety cushion is prehaps too generous.

Having been lower than you are right now I can assure you that you can live without that card and you'll be amazed at how little you can manage to live on if you try.

on preview: Westcoaster, many if not most CCCS programs require the person being counciled to agree to not get any new cards till discharge of the program and while the verbage isn't exactly right - cards aren't "automatically cancelled" - accounts are CLOSED to get the reductions in interest and altered payment structure the CCCS negotiates.
posted by phearlez at 2:01 PM on April 29, 2005

Here's a Fat Wallet thread about re-opening closed credit card accounts.
posted by Dr. Zira at 9:31 PM on April 29, 2005

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