How to deal with lots of debt? Credit Counseling?

[Adi12982]

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]

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]

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]

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]

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]

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

 

[mom2pandc]

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.

 

[mom2pandc]

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]

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]

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?]

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.

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 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]

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! 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]

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]

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]

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]

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

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]

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]

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]

I sent you a PM

 

[ilovemk76]

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.