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View Full Version : How to deal with lots of debt? Credit Counseling?


Adi12982
06-24-2011, 10:01 AM
Do you recommend credit counseling?

I know things like being in debt can be a touchy subject around here, but I am trying to help out a good friend.

Before you judge, this friend and their family recently faced over a year and a half of unemployment (that happened right after a baby was born), so that is why the amounts are so huge.

They have $12,000 on one credit card, $12,000 on an unsecured loan and $18,000 on another credit card. $42,000 total debt. They do not want to file bankruptcy. Right now paying everything (housing, debt, utilities, gas and food) is more than the income (Thankfully no longer unemployed). The payments on one credit card is $250, the other is $350 and the loan is $300. They are living without extras, there just isn't anything else they can cut out.

What would your recommend they do? What would you do in this situation? Try to get a secured loan? Debt consolidation loan? Debt counseling? OR?

I need to offer them help and hope without judgement, please.

THANKS for your help Budget Board!

minnie1928
06-24-2011, 10:23 AM
Consumer Credit Counseling Services, sometimes offered through the United Way, is the most reputable organization to use in this type of situation. I took my mom to them several years ago and they were just amazing. No judgement, just honest help. They do request a monthly fee for their services, but I don't think it's a requirement.

Adi12982
06-24-2011, 10:43 AM
Consumer Credit Counseling Services, sometimes offered through the United Way, is the most reputable organization to use in this type of situation. I took my mom to them several years ago and they were just amazing. No judgement, just honest help. They do request a monthly fee for their services, but I don't think it's a requirement.

Is this them? http://www.cccsstl.org/

Would that be better than getting a secured loan against a home?

4Pirates&APrincess
06-24-2011, 11:12 AM
One problem they may run into is that their income doesnt support their debt. Unfortunately, we ran into this situation and although I am not proud of it we ended up having to file for bankruptcy. What we made was not enough to cover the payments we would have had to make with credit counseling. They told us straight out that they could not help us. Ours was due to a huge loss in income because my husbands job is mostly commission based and when the economy tanked so did the financial investment world. I wish your friends luck and it does get better. Hopefully they will not be in the same situation as we were and be able to rectify in another manner.

Planogirl
06-24-2011, 11:18 AM
I'd at least go talk to a reputable credit counseling service. Another that I know of that is good is Consolidated but they do charge a monthly fee.

It doesn't hurt to discuss the situation. They don't have to enroll if they decide that it won't work for them.

tlenzendorf
06-24-2011, 11:21 AM
I used Care One Credit Counseling. I live in Wisconsin, so with our laws they can't charge any fees, just the operating cost or whatever they call it... They were very easy to work with and not judgemental at all. I used the debt consolidation, they talked with my creditors and got all the APRs lowered. I pay the same amount each month. I have gone from $21k to $11k in 2 years and have 2 years to go. I went from being panicked and having no end in site to feeling pretty good about being debt free in just a few years.

I know they also have a debt settlement program, but I'm not sure how that one works.

I can't really give any good advice for them as far as what to do. It will be different for everyone. That is just my experience :goodvibes

mom2pandc
06-24-2011, 11:23 AM
Credit counselors or debt consolidations companies charge you $ to negotiate your debts down. If they are current on their bills, there isn't much room for negotiating because they are being paid...credit cards negotiate when the bills haven't been paid so they try to get something rather than nothing. If they "counsel" them to default on the debt so they have negotiating power, it will end up destroying their credit almost as much as a bankruptcy, so there isn't any benefit there.
I wouldn't take it against my house because if they did end up in bankruptcy, you've just added all that debt to your home and instead of being able to re-sign for your house loan and getting rid of the unsecured debt, they will end up losing their house since the unsecured are then secured with the house.
Honestly I think their best answer is the gut it out. It will mean extra jobs, side jobs, having a garage sale. Whatever it takes to clean the mess up. It isn't going to get better overnight, just like the hole that got dug didn't happen overnight.
I followed Dave Ramsey when I was getting out of debt (much smaller amounts, but still the methods work) I would recommend his "total money makeover" book for at least a starting point to get a plan going. Having a plan is half the battle.
If push comes to shove, food house and utilities come first. Credit cards will yell scream and complain, but so what. The babies and parents have to eat and have a roof over their head first and foremost.
Good luck to them! It's very important that they tackle it together and work a plan together. It's a tough thing for anyone to go through, and especially a marriage to go through.
:grouphug:

mom2pandc
06-24-2011, 11:25 AM
Oh one more thing, they can call the credit cards themselves and negotiate lower interest rates. You don't necessarily need a company to do that for you. One of my friends got 4 of her cards down to 0% just by calling and asking sweetly. One of her cards gave her a low rate for a short time period so she tackled that one first and got it paid off before the rate went up. If all else fails, if one has a high interest rate, transfer the balance to a lower rate card.

tlenzendorf
06-24-2011, 11:29 AM
Credit counselors or debt consolidations companies charge you $ to negotiate your debts down.

May or may not be true depending on your state laws. I live in Wisconsin and this is not true. I have a monthly "fee" of $30 a month. But I went from having payments of $650/month and no end in site to $468/month and done in 4 years.

njmom47
06-24-2011, 11:30 AM
Oh one more thing, they can call the credit cards themselves and negotiate lower interest rates. You don't necessarily need a company to do that for you. One of my friends got 4 of her cards down to 0% just by calling and asking sweetly. One of her cards gave her a low rate for a short time period so she tackled that one first and got it paid off before the rate went up. If all else fails, if one has a high interest rate, transfer the balance to a lower rate card.

I did this for one of my cards. They reduced the rate for a year but then jacked it up superhigh! I keep calling and asking about an interest rate reduction but they say "there are no programs available at this time; please call again in a couple of weeks." DH also just paid off all his cc through Novadebt.

Where'sPiglet?
06-24-2011, 11:53 AM
Honestly I think their best answer is the gut it out. It will mean extra jobs, side jobs, having a garage sale. Whatever it takes to clean the mess up. It isn't going to get better overnight, just like the hole that got dug didn't happen overnight.

I followed Dave Ramsey when I was getting out of debt (much smaller amounts, but still the methods work) I would recommend his "total money makeover" book for at least a starting point to get a plan going. Having a plan is half the battle.

If push comes to shove, food house and utilities come first. Credit cards will yell scream and complain, but so what. The babies and parents have to eat and have a roof over their head first and foremost.
Good luck to them! It's very important that they tackle it together and work a plan together. It's a tough thing for anyone to go through, and especially a marriage to go through.
:grouphug:

I don't always suggest Dave Ramsey, but the situation your friends are in is the type that I do suggest his plan for. (Really, his plan can work for anybody, but my opinion is it's best suited for people that are desperate. I don't agree with his stance on everybody completely abandoning credit cards....I think most people can and should use them responsibly.)

I agree....have them get the Total Money Makeover book and read it before deciding what steps to take. Most libraries should have it. Also, www.llnoe.com (http://www.llnoe.com) is back up and running, and they have good (free) advice on following DR's plan.

ETA: They still may decide the counseling route is best, but at least they can look into alternatives before committing to that.

LuvLuvLuv
06-24-2011, 11:54 AM
May or may not be true depending on your state laws. I live in Wisconsin and this is not true. I have a monthly "fee" of $30 a month. But I went from having payments of $650/month and no end in site to $468/month and done in 4 years.

This! :thumbsup2 I went from $800+ payments to a bill of $437 for 43 months! There was originally a $30 fee per month, then I added on 2 more doctor bills, and corrected a mistake they made and they took away the fees for the life of the consolidation! In March 2013 I will be out!! Although I don't have access to credit (while planning a wedding), I have a new found love and respect for paying with cash.

eliza61
06-24-2011, 01:45 PM
Oh one more thing, they can call the credit cards themselves and negotiate lower interest rates. You don't necessarily need a company to do that for you. One of my friends got 4 of her cards down to 0% just by calling and asking sweetly. One of her cards gave her a low rate for a short time period so she tackled that one first and got it paid off before the rate went up. If all else fails, if one has a high interest rate, transfer the balance to a lower rate card.

I would do both. some times the cc companies give individuals a harder time (so I've heard) thinking if they harrass you or play hardball you'll get scared and pay them first.

Op, make sure if they go the couseling route that they use a reputable company. I would stick with CCCS. I've heard so many horror story of getting these fly by night operations that end up doing more harm than help.

timmac
06-24-2011, 03:04 PM
A few thoughts...

First, calling CC companies yourself will only sometimes be useful. They tend to be more inclinded to make deals with counseling services, becuase there is a greater chance of the consumer actually making payments that way. Also, just lowering the interest rates won't do a thing for the monthly payments. It will reduce the time it takes to pay off, but it seems just making the monthly payments is the issue here.

At least one PP has alluded to concern over credit rating. Even with a counseling agency, there may be an affect on credit rating. The primary reason for counseling is to avoid bankruptcy, not perfectly protect one's credit.

All of that said, it seems there may be some unfortunate hard realities to deal with here. It appears total debt payments per month are currently $900. After paying for housing, utilities, and food (I'd call that the bare minimum), how much is left? We know it's not enough, but by how much? If we're talking $200, a counseling service may be able to help, if it's much more than that, time to start taking more drastic measures like second jobs, or maybe even moving into a cheaper dwelling.

I know you said they don't want to file bankruptcy, and that is understandable. But I'm sure they also didn't want to have such a long period of unemployment, etc. The most hopeful way I can recommend to handle the situation is to suggest your friend first take stock of what are the biggest priorities in life, and work from there. Can they pay for their housing, lights to be on, and food to eat? Is everyone in the family (more or less) healthy? If those are both true, I'd say that's a good start; the debt is what it is, and as bad as the numbers may sound on paper, aren't such a huge deal compared to what is really important.

cglaura
06-24-2011, 03:11 PM
Perhaps 2nd p/t jobs (if not already...)? Anything. Lawn mowing on weekends, baby sitting, dog walking, convenience store weekend shift, cleaning houses. It will mean working, alot. And maybe totally stink-o jobs. And time apart, alot. But it won't be forever.

Have them check into their insurance, maybe can lower that payment.

Do they have two cars? Can they get by on one?

DisMN
06-24-2011, 03:24 PM
I used Care One Credit Counseling. I live in Wisconsin, so with our laws they can't charge any fees, just the operating cost or whatever they call it... They were very easy to work with and not judgemental at all. I used the debt consolidation, they talked with my creditors and got all the APRs lowered. I pay the same amount each month. I have gone from $21k to $11k in 2 years and have 2 years to go. I went from being panicked and having no end in site to feeling pretty good about being debt free in just a few years.

I know they also have a debt settlement program, but I'm not sure how that one works.

I can't really give any good advice for them as far as what to do. It will be different for everyone. That is just my experience :goodvibes



I highly recommend them! We are currently with CareOne too and have made good progress with our debts. THEY do all the dealing with your creditors and the creditors work well with CareOne.....what I mean is the creditors are familiar with the program.

We tried the consumer counselling stuff and they couldn't help us. Said our debt was too high. For many reasons though we stuck it out and did NOT want to file bankruptcy.

Have your friends give CareOne a call. It has been our lifeline! One thing though if they are trying to avoid bankruptcy they should avoid the CareOne settlement program. It's akin to bankruptcy as far as I can tell. Other than that have them call CareOne asap........they'll sleep easier tonite if they do!

p.s. tell your friends not to worry about their credit rating. At this point their rating is the least of their worries. FYI our credit rating went down just a bit at the beginning of our program but less than a year into it we've got a score higher than when we began! Go figure.

Marionnette
06-24-2011, 03:26 PM
Did they really rack up $42K in debt over an 18-month period (more than $2300/month) or was a lot of that debt already in existence when the husband lost his job?

SarahKate
06-24-2011, 03:44 PM
CCCS for sure!!!! They are a 501c3 non profit.....they're not like the ads you see on TV.

They charge a NOMINAL fee for their services. I can't recall what it was but it was very small comparing to the interest they saved me. I ran into trouble about 12 or so years ago and they were great. They also offered educational seminars on budgeting and first time homebuying.

As far as "gutting it out," that's all well and good if they talk to creditors and they're willing to negotiate. CCCS is going to have more negotiating power than the individual who might call.

cluelyss18
06-24-2011, 05:53 PM
I sent you a PM

ilovemk76
06-24-2011, 07:28 PM
Do you recommend credit counseling?

I know things like being in debt can be a touchy subject around here, but I am trying to help out a good friend.

Before you judge, this friend and their family recently faced over a year and a half of unemployment (that happened right after a baby was born), so that is why the amounts are so huge.

They have $12,000 on one credit card, $12,000 on an unsecured loan and $18,000 on another credit card. $42,000 total debt. They do not want to file bankruptcy. Right now paying everything (housing, debt, utilities, gas and food) is more than the income (Thankfully no longer unemployed). The payments on one credit card is $250, the other is $350 and the loan is $300. They are living without extras, there just isn't anything else they can cut out.

What would your recommend they do? What would you do in this situation? Try to get a secured loan? Debt consolidation loan? Debt counseling? OR?

I need to offer them help and hope without judgement, please.

THANKS for your help Budget Board!


The bolded is a major concern. The fact that paying just the basics and the minimums on their debt would mean they are paying little to no debt off each month. The first thing they need to do is increase their income.

If they are a one income family they need to become a two income family who might have to work opposite shifts. If they are already a two income family then a second job is needed. This is what we would do.

Planogirl
06-25-2011, 01:42 AM
Oh one more thing, they can call the credit cards themselves and negotiate lower interest rates. You don't necessarily need a company to do that for you. One of my friends got 4 of her cards down to 0% just by calling and asking sweetly. One of her cards gave her a low rate for a short time period so she tackled that one first and got it paid off before the rate went up. If all else fails, if one has a high interest rate, transfer the balance to a lower rate card.
When we both lost our jobs and had medical bills that ate up our savings, Chase refused to negotiate with us. They told us that they would only work with us through a credit counseling service so that's what we did. They then lowered the interest dramatically and we paid off every penny. The counseling service fees were small particularly compared to what Chase originally wanted us to pay.

*Seanaci*
06-25-2011, 02:10 AM
I'd at least go talk to a reputable credit counseling service. Another that I know of that is good is Consolidated but they do charge a monthly fee.

It doesn't hurt to discuss the situation. They don't have to enroll if they decide that it won't work for them.

Ditto the bolded.

DS was a surprise 4 years ago...DH and I had been living with my parents...but moved out when I was 12 weeks pregnant (hoping to make it on our own). Moved back in with my parents after crunching numbers and determining that even with me working we'd have to do some sort of debt consolodation. So, I became a stay at home mom. We initally went with consolodation...until DH's CC company kept saying we needed to pay more on his CC (we were paying the max we could toward each of the 3 CC's at the time). Ended up going with Debt Settlement in early 2008. We were instructed to put away a determined amount of money every month while the Settlement company worked on negotiating lower payoffs for our CC's. We got both my CC's paid off over the last year and a half (it's a loooooooooooooong process to do settlement). And we just got the call that they have negotiated a lower payoff for DH's CC. We will be done making payments on that by April next year (like I said...it's a loooooooooooooooooooon process).

Yes. It has been a stressful 3 years...but...it has been soooooooo worth it. We had the support of a wonderful company (the name escapes me) that we could call upon to help stop the harassing calls from the collection agencies. And I was actually represented by a law firm pro bono and got a small settlement ($500) because they violated the Fair Debt Collection Act (in the end, the collection company had to pay all court/lawyer fees).

Good luck to your friends! Debt sucks! But I know they'll come out of it on top. :D

Beckypooh1972
06-25-2011, 09:54 AM
I'd recommend the Dave Ramsey path to paying off debt too. First thing that will have to happen is they will have to get serious about building their income. They may have to perform odd jobs or get a second job to get their income up, especially if they really believe they've "cut out all the extras" already.

Mouseless2Long
06-25-2011, 09:01 PM
I was offered early retirement 4 years ago and took it knowing I had a massive amount of debt. I wanted to pay them off as quickly as possible and and also knew I would not be disciplined enough to not be tempted to use any cards I paid down, so I decided to go to Consumer Credit Counseling. I am so glad I did!! My debt will be completely paid off in 6 months, but the biggest lesson I learned in the 4.6 years (yes it took that long) it took me to pay it off was how to live using cash only. It can be done and I have zero interest in obtaining credit in the future. I have no regrets and much peace of mind.

P.S. I pay $36 a month. Look for a reputable non-profit organization.

suzyrugrat
06-27-2011, 12:26 AM
I went thru a horrible recession in the early '90's and my husband kept losing jobs as tge companies he went to work for kept closing down, we went thru CCCS and they got the creditors to lower the interest, but still couldnt keep up with the payments and filed Chapter 13 bankruptcy, that cut out more interest and we paid all creditors off in 3 years, rebuilt our credit and got into controllable debt but didnt have much of an emergency fund, took Dave Ramsey's Financial Peace University, paid off all debt including house and cars 3 years ago and now have emergency fund, vacation, Christmas savings. After struggling for 20 years I wish I had taken FP in the beginning! Now I understand how to budget and save and my kids are pretty smart a out managing tbeir money. I was laid off for 5 months 2 years ago and DH has been laid off 2 1/4 years, went back to school and just graduated. We have managed to stay out of debt while adding to our savings and I have Dave Ramsey to thank!

TnTWalter
06-27-2011, 10:55 AM
But the key here from folks is to avoid the for profit companies...there are many out there....and stick to a non-profit credit counseling service.

Here's Clark Howard's advice [he provides a link to find a counselor in your area].
http://www.clarkhoward.com/news/clark-howard/personal-finance-credit/debt-settlement-outfits-make-hollow-promises/nFHz/

Planogirl
06-27-2011, 11:41 AM
There is nothing wrong with many debt payment programs. Just read the fine print and know what you're getting into.

luharvey77
06-28-2011, 04:01 PM
I also recommend Dave Ramsey. That is what we used to help us plan how to pay off our debt. We then went to Disney to celebrate. :)

Adi12982
06-28-2011, 04:08 PM
Did they really rack up $42K in debt over an 18-month period (more than $2300/month) or was a lot of that debt already in existence when the husband lost his job?
\
Most of it was racked up in the year and a half - it included moving from DC to FL to be back with family as well as the birth of the baby, since he had no job at the time.

Adi12982
06-28-2011, 04:09 PM
Thanks everyone for all the advice thus far. I will pass it along! :goodvibes

Adi12982
06-28-2011, 04:12 PM
Did they really rack up $42K in debt over an 18-month period (more than $2300/month) or was a lot of that debt already in existence when the husband lost his job?

That would also assume that there was no interest added at all in the last 3 years or so ;) They say at least 90% of it was during the laid off period, the rest is just charging more now that all their money is going to paying everything.

labdogs42
06-28-2011, 04:38 PM
How does one know which credit counseling agencies are legit? I see a few different recommendations here, does that mean those are all OK?

Mouseless2Long
06-28-2011, 06:29 PM
My credit union recommended Consumer Credit Counseling Services, a non-profit organization. Credit Unions are "not-for-profit" organizations and in the case of my credit union, they receive no compensation for recommending CCCS, so it is a recommendation I trust.

brota
06-28-2011, 11:30 PM
I used http://www.debtsynergy.com/
They are like a cccs but not a non profit.
They cut my rates after citibank jacked my rates to 23% and double my min payment.
My citibank debt is now at 9% and my bank of america is at 1%
there is a monthly fee.

I found them very helpful and honest so far.
PM me if you have any questions

palavra
06-29-2011, 01:18 AM
Oh one more thing, they can call the credit cards themselves and negotiate lower interest rates. You don't necessarily need a company to do that for you. One of my friends got 4 of her cards down to 0% just by calling and asking sweetly. One of her cards gave her a low rate for a short time period so she tackled that one first and got it paid off before the rate went up. If all else fails, if one has a high interest rate, transfer the balance to a lower rate card.

And I tried doing that when I had credit card debt and got nowhere with the companies because I was current on my payments. I did end up going through a credit counseling organization. I'm so thankful I did. My interest rates were significantly reduced, and debt has been paid off for two year now.

dimimi
06-29-2011, 07:51 AM
You mentioned that they just moved to Florida to live near family. What if the mom got a job, either part time or full time and her family watched the baby....or the mom worked part time when the husband is home?