How to find financial planners for the paycheck to paycheck set?
December 20, 2012 7:12 AM   Subscribe

How to do credit counselling without limiting credit cards?

A friend asked me about who they should talk to about credit counselling. They make a decent salary now, but they don't know how to best pay down their various car, personal, home, and student loans in the best way.

They'd also be open to advice on monthly budgeting, but they don't want to go through a credit counselling service that will settle with creditors and take away their credit cards until the debts are settled. This question spurred me to finally ask the question. Are there fee-based budgeting financial helpers who work with debt more than investments? How would one find them?
posted by ldthomps to Work & Money (5 answers total) 8 users marked this as a favorite
I personally can't stand Dave Ramsey's politics, but his common-sense approach to debt reduction is excellent. The Total Money Makeover is a step-by-step method for debt reduction.
posted by Ruthless Bunny at 7:19 AM on December 20, 2012 [2 favorites]

As someone who went through Credit Counseling, I can report that all my credit cards were not taken away/limited - just the ones I put in the program. But if they are not financially strapped, I'm not sure if the credit counselors will take them on.

Anyway, the best way to (and the way CCCS will) have one pay off their bills is in descending order of interest rates. I mostly agree with Ramsey's financial advice (I do not agree with the snowball method), so that's a good resource, too. The student loan (depending on interest) and home loan will be the last ones to focus extra money on, as they are both tax write-offs (in many cases).
posted by getawaysticks at 7:23 AM on December 20, 2012 [1 favorite]

Pay the minimum on all cards except the one with the lowest balance. Pay extra on that every month to pay it off quicker (3X minimum payment is not a bad place to start). When that card is paid off roll that payment on top of the minimum payment of the next lowest balance. Repeat until debt free.

Technically paying off the highest rate card first is the right move, but if their card rates are all in the same neighborhood the motivational bump they'll get by seeing real progress when they get a card to zero is worth more than the couple of hundred bucks they may save in interest by strictly paying down the higher interest rates first.
posted by COD at 7:33 AM on December 20, 2012 [4 favorites]

You should probably just take a look at the National Foundation for Credit Counseling. They've actually got a page where you can search for certified member agencies, either in your area, or that provide counseling over the internet.

Most credit counseling services, as such, don't settle with creditors. That's not really what they're for. They're to teach people about how to responsibly use credit. They're actually a pre-requisite to filing for bankruptcy, i.e., you need a certificate of completion from an approved agency dated no more than 180 days before your filing.

I think what you're thinking of is a slightly more aggressive but less formal service of the sort that Dave Ramsey does. But that's not really "credit counseling" as much as it is a certain species of financial advising. They're sometimes called "financial boot camps," and yes, they can include things like negotiating with creditors and a voluntary-but-required surrender of credit cards. But again, that's not really "credit counseling" as such.

Get in touch with a Community Credit Counseling Service (CCCS) and see what services they have available. I'd be very surprised if your friends couldn't find something to their liking. They can probably even do it on the internet.
posted by valkyryn at 8:03 AM on December 20, 2012 [1 favorite]

Years ago we were in terrible financial trouble. We went to a free credit counseling service. They worked with us to set a budget (and they were strict!), which included how much we could afford to pay each creditor, in most cases a sum that was lower than the minimum payment due. The next step was to destroy all our credit cards, and give the credit counseling service a flat amount of cash per month; they would pay our credit debt for us.

Instead, we said thank you for the advice, then called all our creditors and told each one of them we had gone through credit counseling, they had helped us set up a payment schedule we could maintain, and we'd like to start. Every single one of them agreed. We paid those amounts absolutely regularly, and yes -- eventually we were, and are, out of credit card debt.

It doesn't sound like your friend needs something this extreme, but it was such a godsend to us that I thought I'd share it here.

(I think part of the reason the creditors were open to this was because in Seattle, at the time, the credit counseling service was funded by businesses and credit card companies; they felt they had a stake in getting people to pay regularly and to get out of overwhelming debt. Judging by how nearly impossible the bank and mortgage company made it for my daughter to sell her house through a short sale, that attitude may no longer exist.)
posted by kestralwing at 8:06 AM on December 20, 2012 [1 favorite]

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