Credit Card Counseling

I am thinking about consolidating a lot of unsecured debt using a debt/credit card counseling service. How will use of that sort of service affect my credit rating long-term?

Please do not consolidate. It is not free, they will lower your payments by increasing the length of time until you are debt free, and you will take a hit on your credit score. Or they negotiate your debt down after telling you not to pay for awhile adding another hit to your credit score. There is a better way.

A. Have a garage sale and sell anything that you no longer need or want.

B.Get a temporary part time job, if you have one, get another.


Here is a plan that can help you. If you work the plan, the plan will work for you:
1. Make a budget. Make the budget a week before you get paid. A budget is not a punishment! It is a tool which will free you from ever having to worry about money again. Put everything in your budget. Especially those annual, biannual, or quarterly bills like car registration, insurance, etc. Give every dollar you are going to bring home the name of where it is going. Add an "emergency fund" category to your budget for 25 dollars and save up until you have 1000-1250 dollars. Your emergency fund will help keep you from getting into new debt because of an emergency. If you can, set up a direct transfer to a savings account for your emergency fund. That way it moves automatically and you don't even have to worry about it. You must cut your spending and live on less than you make.

2.First get current on all of you debts and make no more late payments. Stop using your credit cards immediately. Do not take on any more debt. Credit cards are like quicksand only the death is much slower. Make a list of all of your debts in order of highest interest rate to lowest interest. Use cash only for your spending from now on.

3.Pay the minimum due on all of your debts and then put your extra money towards paying off the highest interest one first. After you get that one paid off, you put the money you were paying on debt #1 (the minimum payment and the extra payment) towards debt #2. That will pay debt #2 off faster. When that is paid off, you put all three payments towards card #3 and that one will be paid off pretty quickly. As an example:

To start :
Debt #1 (highest interest): minimum payment+ extra payment
Debt #2 (middle interest): minimum payment
Debt #3(lowest interest): minimum payment

Debt #1: paid off
Debt #2: minimum payment from Debt #1+ Minimum payment from Debt #2 +extra payment
Debt #3: minimum payment

Debt #1: paid off
Debt #2: paid off
Debt #3:Minimum payment from card #1+ minimum payment from Debt #2+ minimum payment from Debt #3+ extra payment.

That way, you will get them all paid off, on time, and pay the least interest. It will also help towards rebuilding your credit since you will no longer have any late payments. This works no matter how many different debts you may have.

4. After you get all of your debts paid off, add to your emergency fund until you have 6-12 months of income saved up. Put that emergency fund money into a liquid money market fund or into a Bank of America no-risk CD so that if you need the money you can take it out without penalty.

5a. When you have your emergency fund in place, add a category for "fun" to your budget. Save for a holiday, a vacation, a big screen, or dinners out, whatever goal you want. Remember to enjoy your life.

5b. When you have your emergency fund in place, start saving for your retirement. Join the 401(k) plan at work and contribute the maximum. Your employer probably matches at least part of your contribution so why give up free money? Open a Roth IRA and contribute the maximum on a monthly basis. If you start saving for your retirement now, you will probably retire a millionaire.

5c. When you have your emergency fund in place, start saving for your next car. Only buy cars, or other things that depreciate, with cash. Save up for a nicer car. That way you get the interest instead of paying the interest.

You can do it and it isn't as hard as you think. Just follow the plan

2009-04-17 09:08:06 by jimthephilosopher

Going to credit counseling doesnt hurt your FICO® score — as long as the agency pays your bills on time! Find out more in this video, where Darcy ...

We have 3 credit cards, all maxed to and over the limit. I am consulting a credit counseling service but my husband doesn't want it to ruin our credit. I personally think it will get us out of debt A LOT quicker and we're not filing bankruptcy. It may give us a blemish on our credit. But I think it's worth it.

Be careful with so-called credit repair businesses. Many are a rip-off and charge you to virtually nothing. You can do better contacting the credit card company yourself and work out payment terms.

2006-05-23 19:49:17 by animalover

Price: $5.95 $5.95

Debt settlement: means paying off a loan for less then what you actually owe. Downside of this is that they will charge off what you didn't pay and under IRS rules, if the amount charged off is over $600 you will get a 1099C and have to file the difference as unearned income on your federal taxes. It will also state paid in settlement on your credit report.

Credit Counseling: well that is simply a firm that adds up your debts and figures out what you can afford to pay monthly (which includes their fees) and notifies your creditors that you are trying to work out a payment plan. You will no longer have access to those accounts as they will be closed and your credit report will show that the negative accounts are being handled by a credit counseling agency. This will at least give you some time to pay off those debts and eventually you can start to rebuild your credit.

Remember though, the debtor does not have to accept any terms or proposals made by the counseling service. Some may want to get paid off first.

Hope this helps answer your question.

2009-03-21 13:39:48 by LaLa777

Price: $12.00 $12.00

Just had a major surgery and racked up some major credit card debt while being out of work. Just looking to see where I could start now that I am going back to work.

If you are able, take out a home equity loan. Pay off the credit card bills with the proceeds. Then pay off the home equity loan as quickly as possible. This is a win-win situation. You get the credit card bills paid off, plus the interest on the home equity loan is a tax deduction.

Or, you could line up the credit card bills by 1)interest rate, 2)highest amount owed to lowest amount owed, or 3)lowest amount owed to highest amount owed. Whatever way you line them up, start paying them off.
I preferred the lowest amount owed to the highest amount owed. I paid the most money to the lowest balance, then paid the remaining bills just above the minimum required. As the lowest bill was paid off, I then applied that same amount plus the minimum to the next highest bill. As that bill was paid off, I then applied that amount plus the minimum to the next bill, etc.
Now Susie Orman would disagree with this method, but I found great satisfaction in seeing the bills disappear more quickly than if I had paid off the highest interest rate bill (regardless of balance) or the highest balance bill first. Plus, I think when you have big bills hanging over your head, you need to see progress as quickly as possible. It really gives you a boost to see those bills drop off the face of the earth.

Good luck!

2007-05-05 12:40:50 by metro7

I used this service several years ago when i was young and stupid and had let my credit card rocket sky high. It did help me pay them off faster although i did have some headaches in doing so. It did affect my credit although in the long run i think it helped more than hurt. It will stay on your credit report for 7 years after your last and final debt payment so consider that. If you are planning on making any large purchases within that time frame it could really affect your finance charge or your ability to get a loan. Like the other person answered, you can try working with the credit card companies on your own, requesting they either waive or lower the finance charge. I have also received advice before to open one of those balance transfer accounts and transfer your recurring debt to those so you can pay off your debt faster with no interest rate but you must be aware that when the initial no interest time span is over you may have to transfer again because their interest rate might even be higher than your old credit card after the original promotion rate. I would definitely shop around and research advice in other columns or websites also. Credit Ratings are so important now adays, it could affect your life for a long time.

2006-02-27 08:22:58 by CHEZ