Legitimate Credit and Debt Counseling
October 27, 2014 11:44 AM Subscribe
Family member is in debt and needs help getting out of debt. I've researched both Appraisen and Clearpoint but both seem to be run by a corporation. I don't know if that's a good thing or not. Some credit counseling firms have charged big fees and gotten some people in worse trouble and even deeper in debt. I don't want her to get locked into something worse. Do these really help? Are they legit?
A lot of "credit counseling" programs that offer to take over payments and get you out of debt are scams. They claim they will negotiate with the creditors on your behalf, in exchange for you making payments directly to them instead. What they don't tell you is that they collect your money and stop making payments to your creditors altogether. A year or 18 months down the road, they will negotiate a lump-sum payment (at a reduced rate) to pay off the debt and close the account.
Of course, what they don't really tell you up front is that the lump-sum payment is much less than what you've been paying to the middle man, who keeps the difference. The added insult is that the difference between what you actually owed and what was paid off is considered income in the form of forgiven debt, and will be reported for your taxes the following year.
A better course of action is to close the accounts if you haven't already done so, and directly negotiate a payment plan with your creditors. They are more likely to negotiate a reasonable payment plan if they know you won't rack up new debt in the interim, which is why you need to close the credit cards before negotiating the payment.
If you have a steady source of income and are just drowning in debt (especially at your credit cards' default rates after missing several payments) you can also look into debt consolidation loans from your local community bank or credit union. They will also require you to close the accounts in question but are more likely to give you a decent interest rate than just continuing to pay the card companies directly.
If all else fails, then follow empath's advice and consult a bankruptcy attorney - but before filing anything, be sure to get your remaining financial ducks in a row. Meaning - if you need to buy a new car, or are moving and need to rent a new apartment, do all that before you file. Bankruptcy will absolutely tank your credit score, even more so than having late payments or even a default on your record.
posted by trivia genius at 12:06 PM on October 27, 2014
Of course, what they don't really tell you up front is that the lump-sum payment is much less than what you've been paying to the middle man, who keeps the difference. The added insult is that the difference between what you actually owed and what was paid off is considered income in the form of forgiven debt, and will be reported for your taxes the following year.
A better course of action is to close the accounts if you haven't already done so, and directly negotiate a payment plan with your creditors. They are more likely to negotiate a reasonable payment plan if they know you won't rack up new debt in the interim, which is why you need to close the credit cards before negotiating the payment.
If you have a steady source of income and are just drowning in debt (especially at your credit cards' default rates after missing several payments) you can also look into debt consolidation loans from your local community bank or credit union. They will also require you to close the accounts in question but are more likely to give you a decent interest rate than just continuing to pay the card companies directly.
If all else fails, then follow empath's advice and consult a bankruptcy attorney - but before filing anything, be sure to get your remaining financial ducks in a row. Meaning - if you need to buy a new car, or are moving and need to rent a new apartment, do all that before you file. Bankruptcy will absolutely tank your credit score, even more so than having late payments or even a default on your record.
posted by trivia genius at 12:06 PM on October 27, 2014
I am involved in Real Estate investing, and also involved in a large REIA (real estate investor assoc). I know that some investors have helped potential buyers with credit restoration, so that the investors can complete a sale, and have their buyer get a mortgage.
Several people in my REIA group use National Credit Restoration Assistance. The owner is William Crowley. I have met William, and I have heard several people tell me that he does a good job. I, however, have never used him. But, I do know that he does a lot more than banks and other big financial institutions do. And, like I said, I have heard good things about him from multiple sources.
He is based in the Tampa area - but I know he works with people all over the country. He also charges one flat fee. A single one time fee, which I think might be $500.
posted by Flood at 12:09 PM on October 27, 2014
Several people in my REIA group use National Credit Restoration Assistance. The owner is William Crowley. I have met William, and I have heard several people tell me that he does a good job. I, however, have never used him. But, I do know that he does a lot more than banks and other big financial institutions do. And, like I said, I have heard good things about him from multiple sources.
He is based in the Tampa area - but I know he works with people all over the country. He also charges one flat fee. A single one time fee, which I think might be $500.
posted by Flood at 12:09 PM on October 27, 2014
Also - adjacent to getting out of debt - is the credit score. There are only three ways to improve your credit score, especially after it has been tanked by late payments and account defaults.
One is to contest errors on your credits reports and have them removed. You can contest them directly with the credit bureaus, but you'll have much better success going directly to the source and getting the company that reported the error to fix it on their end. They can then report a clean history of credit which will update your credit report and score at each bureau they report to.
Two is to clean up and pay off any late or oustanding accounts. Continuing to pay late or remain in default will keep your score down.
Three is time. Late payments, defaults, and the like will fall off your report after seven years. Unless they are errors and fall under #1 above, nobody can get them removed sooner.
posted by trivia genius at 12:14 PM on October 27, 2014 [1 favorite]
One is to contest errors on your credits reports and have them removed. You can contest them directly with the credit bureaus, but you'll have much better success going directly to the source and getting the company that reported the error to fix it on their end. They can then report a clean history of credit which will update your credit report and score at each bureau they report to.
Two is to clean up and pay off any late or oustanding accounts. Continuing to pay late or remain in default will keep your score down.
Three is time. Late payments, defaults, and the like will fall off your report after seven years. Unless they are errors and fall under #1 above, nobody can get them removed sooner.
posted by trivia genius at 12:14 PM on October 27, 2014 [1 favorite]
I liked the answers in this older askme, and even this older askme. The non-profit agencies still charge for services, but they seem a lot less scammy than some of the others I'd seen.
Seconding that it may be worth talking with a bankruptcy attorney, too. Their fees come out of the bankruptcy, if it comes to that, and good ones won't advise bankruptcy if credit consolidation would be a better fit for your finances.
posted by ldthomps at 12:40 PM on October 27, 2014
Seconding that it may be worth talking with a bankruptcy attorney, too. Their fees come out of the bankruptcy, if it comes to that, and good ones won't advise bankruptcy if credit consolidation would be a better fit for your finances.
posted by ldthomps at 12:40 PM on October 27, 2014
Both my boss and I have used Greenpath. They are fantastic, irrespective of the amount of debt you're talking about. They charge $35 per month but you never have to talk to your creditors. To me, that was priceless. They are nonprofit and they also provide instruction in keeping out of debt, etc.
Don't do debt consolidation. That IS a scam. Do debt counseling.
posted by janey47 at 12:57 PM on October 27, 2014 [3 favorites]
Don't do debt consolidation. That IS a scam. Do debt counseling.
posted by janey47 at 12:57 PM on October 27, 2014 [3 favorites]
http://www.consumercredit.com/
It's a highly reputable non-profit such that receiving a consultation through them is a part of my employer's Employee Assistance program. I did call them once and they were very useful. If they can avoid it, they work more on budgeting and solutions for your current status that involve reducing debt. They do also have a program by which they will speak with creditors onr your behalf and work out new payment plans, etc., but if you enter the program you really have to do what they say and stick to those parameters.
Also, youneedabudget.com has a very user friendly software program and works on the principle of the $0 budget (meaning every dollar has a job). It's similar to Consumer Credit, except that it's on you to do all the legwork in adjusting how you think of money and assigning your dollars to categories. It's different from Mint because it's not just tracking what you've already spent --- it gives you an idea of how much you CAN spend and really teaches you there is a finite amount of money.
posted by zizzle at 1:16 PM on October 27, 2014 [1 favorite]
It's a highly reputable non-profit such that receiving a consultation through them is a part of my employer's Employee Assistance program. I did call them once and they were very useful. If they can avoid it, they work more on budgeting and solutions for your current status that involve reducing debt. They do also have a program by which they will speak with creditors onr your behalf and work out new payment plans, etc., but if you enter the program you really have to do what they say and stick to those parameters.
Also, youneedabudget.com has a very user friendly software program and works on the principle of the $0 budget (meaning every dollar has a job). It's similar to Consumer Credit, except that it's on you to do all the legwork in adjusting how you think of money and assigning your dollars to categories. It's different from Mint because it's not just tracking what you've already spent --- it gives you an idea of how much you CAN spend and really teaches you there is a finite amount of money.
posted by zizzle at 1:16 PM on October 27, 2014 [1 favorite]
Also came to suggest Greenpath if you go the debt management program route, they are a nonprofit and have been around for 50 years or more.
Never hurts to also see a bankruptcy attorney, generally the 1st consultation is free, just to get an idea of your options. I recommend the NACBA attorney finder. NACBA is an organization for bankruptcy attorneys, their members generally dedicate a substantial portion of their practice to bankruptcy. So you are more likely to get a good attorney vs. someone who may only do 1 or 2 bankruptcies a year. YMMV.
posted by banished at 1:18 PM on October 27, 2014 [1 favorite]
Never hurts to also see a bankruptcy attorney, generally the 1st consultation is free, just to get an idea of your options. I recommend the NACBA attorney finder. NACBA is an organization for bankruptcy attorneys, their members generally dedicate a substantial portion of their practice to bankruptcy. So you are more likely to get a good attorney vs. someone who may only do 1 or 2 bankruptcies a year. YMMV.
posted by banished at 1:18 PM on October 27, 2014 [1 favorite]
If your relative is at the point where s/he is being harassed by creditors for defaulted debt, then I agree with empath and banished: talk to an attorney who specializes in debt and bankruptcy. Mine was able to get debt collectors to stop calling me as well as to negotiate payments without me ever having to deal with them directly. He was worth every penny.
posted by violetk at 1:20 PM on October 27, 2014
posted by violetk at 1:20 PM on October 27, 2014
There's a lot of good advice here. I just want to second the recommendation of the YNAB program (youneedabudget.com). It has helped me considerably in getting a better handle on my finances. There's a free trial, so you've got nothing to lose!
posted by merikus at 1:32 PM on October 27, 2014
posted by merikus at 1:32 PM on October 27, 2014
Many, many years ago, I used Consumer Counseling Credit Services, run through the United Way. It was not at all scammy and the folks there were very helpful. Also, the fee was very low ($5 a month, maybe?) I was done paying off everything in two years, had excellent customer service from CCCS and would wholeheartedly recommend them.
posted by nubianinthedesert at 2:03 PM on October 27, 2014 [2 favorites]
posted by nubianinthedesert at 2:03 PM on October 27, 2014 [2 favorites]
Call the state's attorney general office or check their website. Most states have a lot of "know your rights" and useful recommendations.
posted by Lesser Shrew at 2:24 PM on October 27, 2014 [1 favorite]
posted by Lesser Shrew at 2:24 PM on October 27, 2014 [1 favorite]
I also had a good experience with Greenpath, and their fee was more than offset by the monthly amount they saved me on interest by negotiating on interest rates for me.
posted by ktkt at 2:24 PM on October 27, 2014 [1 favorite]
posted by ktkt at 2:24 PM on October 27, 2014 [1 favorite]
Your local Legal Aid society might have a good pamphlet, website, or referral service.
posted by Handstand Devil at 4:02 PM on October 27, 2014
posted by Handstand Devil at 4:02 PM on October 27, 2014
We recently started working with Greenpath as well. In addition to negotiating lower interest rates and payments, they are offering three free months of what they call financial coaching, which I'm finding surprisingly helpful. The coach helps with budgeting, cash flow management, and goal-setting. They've been really easy to work with.
posted by Incoherent Cockroach at 5:34 PM on October 27, 2014 [1 favorite]
posted by Incoherent Cockroach at 5:34 PM on October 27, 2014 [1 favorite]
Another recommendation for Consumer Credit Counseling! I was being harrassed by debt collectors, when they started calling me at work, I called these folks. met with them, the phone calls ceased. They got several credit card co's to stop adding interest, with the proviso that I bring the cards to their office and cut them up.
I got my act together, and was able to buy a house with a decent interest rate less than 7 years later.
posted by rudd135 at 6:49 PM on October 27, 2014 [1 favorite]
I got my act together, and was able to buy a house with a decent interest rate less than 7 years later.
posted by rudd135 at 6:49 PM on October 27, 2014 [1 favorite]
Do they belong to a credit union? Do you belong to one that they are eligible to join? A credit union may offer consolidation loans and/or be able to refer you to a reputable credit counselor.
posted by soelo at 7:53 AM on October 28, 2014
posted by soelo at 7:53 AM on October 28, 2014
Nthing CCCS (for me it was CCCS.net). Got out of an incredible amount of debt in under 4 years. Still out of debt years later. Didn't impact my credit score at all, even bought a house while I was going through the process (note: that part is not recommended).
The only impact I have had from the whole experience is Discover Card says they will never give me another card (which is weird, because I paid them every penny). I'm fine with it.
posted by getawaysticks at 5:49 AM on October 29, 2014
The only impact I have had from the whole experience is Discover Card says they will never give me another card (which is weird, because I paid them every penny). I'm fine with it.
posted by getawaysticks at 5:49 AM on October 29, 2014
This thread is closed to new comments.
posted by empath at 11:49 AM on October 27, 2014 [4 favorites]