Debt mgmt. program vs. doing it alone

chuckie123March 7, 2006

I am debating on whether to enter a debt mgmt. company (Balance Financial Fitness) to manage my debt or try to work with the credit card companies alone. I am concerned about what effect entering such a program will have on my credit rating now and for the future. I have not been late on payments, but with the new credit card minimums increasing, it has become more challenging to meet the minimum payments on all of my cards. I tried talking to the credit card companies on my own, but they have not decreased my interest rate to the point that the debt mgmt co. has proposed. With the debt mgmt co., I will be debt free in 5 years. If I try to make payments on my own, given the current rates, I will be in debt forever.

Does anyone have experience using debt mgmt companies? What effect has it had on your credit during and after utilizing the program?

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There are tons of Non-Profit Credit Counseling agencies out there.

I'm assuming that one you talk about requires a fee? Try one of the Non-profits first. They've been around for a long time and have established relationships with some of the credit card providers.

I'm a Mortgage banker, so I've seen all kinds of credit!

And sorry, I don't know what the affects are on your credit, but they should be able to answer that for you.

    Bookmark   March 7, 2006 at 1:40PM
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chuckie 123,

How firm were you when talking to the credit card cos?

Many say that it is possible to achieve some substantial reductions in interest rates and fees if one goes about it the right way.

Maybe they're not too worried, yet - because you've been making minimum payments, and on time - you're not delinquent. I'm *not* suggesting that you become such!

Know what you want to achieve, be pleasant, courteous, always - but firm. And keep moving toward your objective.

Keep the ball in their court - if they get it in your court, you're a goner.

Do you know someone who's fairly familiar with the financial scene and can be rather courteous, firm, but persistent who could call them on your behalf?

I've heard some folks say around here in similar context that some credit-related agencies take a dim view of people using Credit Counselling agencies.

I don't have any suggestions to offer from my own experience - sorry.

If you feel somewhat unable to arrange a better result than at present on your own and can arrange to use a non-profit agency, quite likely their fee will be lower than with using a corporate entity.

Don't forget - the counselling agency will be keeping part of the money that's passing through.

Some have found that they end up paying more monthly, but owe the credit card cos. (almost) as much as before.

Do you have any relationship with a bank or credit union?

Sometimes you can arrange a loan with them to pay off some of the cards charging higher interest rates. Their interest rate will be higher than it would be if you had collateral and could make it a fully secured loan.

What type of cards are you using?

Do you know what rates of interest are being charged?

Many major credit card agencies charge about 15 - 18% annual rate.

But if you have balances owing on store-issued cards, their rates usually run about 25 - 28%.

Not my idea of a good time.

I don't suppose you've had any offers for a newly-issued card recently at low rate (even 0 rate) for a few months?

If so, from regular credit card companies, you might choose to use them.

But if you should choose that route, should it be available, find out whether your total payment goes toward paying off the transferred debt before you start paying on any new purchases.

If so, after the card is issued, don't charge anything on it - or soon you'll have most of the balance accruing interest at their regular rate (with none of the monthly payment going toward reducing that balance).

By the way - they are *not* "credit" cards - they are "debt" cards.

Before you used one, you had no debt.

Immediately on using it - you were in debt.

And if you only "borrow" enough that you can pay the balance owing in full monthly, they don't like it, for they're making no money out of your pocket. Can't stay in business doing that.

If we can be of further help, shout.

Have a great week.

ole joyful

P.S. Learning how money works is an interesting hobby - THAT PAYS WELL!!

o j

    Bookmark   March 7, 2006 at 4:00PM
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Consumer Credit Counseling is free or used to be. Yes, they put you on a budget, yes they tear up all your credit cards. Yes, it affects your credit but not as bad as charge offs or bankruptcy. Having someone talk to your creditors on your behalf is darn near impossible in this day and age. They don't even want to talk to a spouse that isn't on the account.

    Bookmark   March 7, 2006 at 7:18PM
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I must differ with your habit of calling credit cards "debt" cards. Depends entirely on how they're used. Don't buy anything for which the cash won't be available when the statement arrives, pay the balance in full every time and there's no real debt involved. Nothing in the Card Member Agreement says that ONLY the minimum can be paid.

I've never paid a cent in interest, service charges or late fees on a credit card.

    Bookmark   March 7, 2006 at 10:41PM
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I have large balances on at least 4 cards and have never been late for a payment. I think that you are right, these companies are not working with me very much to decrease rates because I've been paying on time, which I will continue to do to the extent that is possible. Of course I have done the most important thing. I stopped using the cards and now only use cash. I do have some cards that are charging interest rates of over 19%.

Balance Financial Fitness Program was referred to me by a credit union. They are part of Consumer Credit Counseling Services of San Franscisco. The quote they gave me for monthly balances seems managable for me. However, I just fear utilizing them would impact my credit rating substantially in the long-run, even after I finished with the program. I am assuming that entering a debt mgmt program will appear on my credit report. How long, I don't know. That is my major concern.

    Bookmark   March 8, 2006 at 1:58PM
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The credit card companies make plenty of money even on people who pay in full each month. They take 2-4% off the top of every transaction - the merchant pays them everytime you use the card. I have a card that I always pay in full on each month, they pay me back 1% of everything I charge in cash and they're still making money. They wouldn't do it otherwise.

    Bookmark   March 8, 2006 at 2:33PM
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May I defend my original statement?

As I said - the minute before you bought something using your "credit" card - you had no debt.

The minute after you bought that something - you were in debt.

The fact that you pay the balance in full each month is certainly the best way to go, by far.

But you were still in debt, for that period.

It's true, as well, that there's a cost involved - as the store doesn't get the full amount of dollars that they bill to the "credit" card co.

I don't mind your having to pay the increased cost that the store adds to the price of their goods that you have to pay, as you're using the "credit" card which costs them more, but as a cash customer I resent having to pay that higher price, as well.

Just try asking the store to give you a discount for cash, though - and watch them laugh in your face.

Some say that their contract with the "credit" card Co. says that they can't do that.

I hope that you're enjoying your week.

ole joyful

    Bookmark   March 8, 2006 at 3:27PM
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I *knew* you were going to say that, about being in debt for the interim between the date of purchase and date of payment. ;-)

For that matter, there is a brief period of debt (minutes) between the time I fill up with gasoline, shut off the pump and walk into the store to make a cash payment. Or (a day or so) between the time I use my debit card and the transaction posts to my checking account.

I'm aware of the cardbank "discount" and other fees merchants pay. Both businesses where I work pay those fees for accepting cards. Believe it or not, neither one has raised prices in direct response to that. One of the businesses hasn't raised prices in more than 6 years.

In any case, I think most people wouldn't consider credit card debt being 'debt' unless and until a balance is carried and accrues interest.

    Bookmark   March 8, 2006 at 5:23PM
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I think you're right.

I think I was splitting hairs - as far as you're concerned.

But you and people like you are not the people whom I want my messages to impact.

You're smart money managers as it is - I assume.

ole joyful

    Bookmark   March 8, 2006 at 5:39PM
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I'm suspicious of a company that charges me money to help me handle my debt. There's no magic in this. It's just that some folks don't have the commitment to deal with this without paying someone else to provide the backbone. What will these folks actually do for you and how will they handle your debt? Do they charge every month for as long as you're in the program?

While I'm also suspicious when I hear people say that they can get their debt under control after digging a deep hole, it sounds like you just may pull this off if you're already had the strength to quit using the cards for the longterm. Before you sign up, I'd suggest you go to one of the legitimate free debt counseling services. Ask them: 1)whether formally participating in any debt management program will go on your credit file, and 2) if there's anything that the for-profit outfit can do for you that you can't do for yourself with a little counseling and willpower. You've really got to do only two things: quit using your cards (which you've done), and make more than the minimum payments.
For me, I've found that paying in cash is a really good way of forcing me to ask myself daily: Do I really need this thing? I hope it works for you that way, too. Good luck.

    Bookmark   March 9, 2006 at 1:56AM
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Here're the monthly merchant fees one of the businesses pays for handling credit cards --
$1.00 Monthly Service Fee
2.50 Terminal Support Fee
5.50 Merchant ACH Fee
5.00 Translink Monthly Fee
-0.91 Visa Check Card Rebate (tiny monthly credit due to some sort of lawsuit some months ago)
68.51 Transaction/Network Access Fees-MAPP

Plus 4.81% of the total sale volume is paid to the merchant bank as a "Discount Due."

And this doesn't include receipt paper and ribbons for the sales terminal.

Overall (at least in this case, as majority of sales are cash), it's a very small expense against total monthly revenue.

    Bookmark   March 9, 2006 at 10:08PM
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If it's at all possible to avoid a debt management co, I would avoid it if I were you. It will totally wreck your credit. All of your reduced payments will show up as late on your credit report. You aren't delinquent on your accounts right now, but all of your 'reduced' payments with be posted as delinquent on your credit report. Having 5 years (as this company has promised you) of late payments is not doing you any favors. If there is any way to avoid it, I would. Maybe get a 2nd job delivering pizzas or something. Start with the card with the smallest balance pay as much extra money that you can toward it. They when it's paid off, take all of that monthly pmt and apply it to the next biggest card etc. There is no quick fix but it can be done! Hang in there!


    Bookmark   March 10, 2006 at 10:58AM
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i have to differ with stella, teh reduced payments do NOT show as late. the program negotitates the reduced interest and payment amount with the lendor, so the amount you pay is correct and paid on time each month.

what you MUST rememebr to do is pay the full normal amount for the first few months, until the debt managment company gets everything setup and the payments posted. if you fail to do this, you WILL see late payments.

That being said, how it affects your credit all depends on the CC companies. some report DMP, others do not. it will not look as bad as bankruptcy, but nor will it look as good as what you are currently doing.

i talked to some folks about entering a program my self once. ALL credits cards and other charge accounts MUST be closed. if you open even a gas card account during the time you are in the program, you will be dropped and have to go back to the old rates. some CC cos. even change you to the near 30% default rates in this case.

    Bookmark   March 10, 2006 at 1:34PM
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I will also attest that reduced payments through a credit counseling program will not show up as late payments, at least mine didn't. I ended up in major debt about 10 years ago through sheer youthful exuberance and stupidity. I went to Consumer Credit Counseling. They gave me some great advice, cut up my credit cards, and put me on a repayment program. All of my debts were repaid within 4 years and I was able to get a mortgage within a year of "graduating" from the repayment program. The mortgage was a good normal rate, not one of those rates for credit challenged folks. I was definitely not penalized for going with them to pay off my debt, and I hadn't gone with them I probably still would have been paying on those darn credit cards!


    Bookmark   March 11, 2006 at 7:50PM
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Can you get a fixed interest loan from your bank or credit union--you cut up all your card except one with the lowest interest rate, and you act as your own credit counselor. You make out a budget, I use Quicken, and your control your spending. What I do, is ask myself, do I really need it, will it be on sale later, or where can i get it cheaper? Go day by day and you can get information off the iter net free, go to the library, make this a challenage and you will come out smarter. If you are not working full time, or even if you are, check the college or High School adult programs for classes. Good luck and pretty soon you will be debt free and proud you did it. Also, start a savings program and put in a mim. amount each paycheck.

    Bookmark   March 11, 2006 at 10:08PM
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I was in terrible, about $30 K spread through five credit cards. Pay off the store cards first, because they have the highest interest rates, 22% or more. Then try to combine the remaining cards (visa and master) onto one card,check into credit union loans for debt consolidation, as a last resort use cash advances. Once you have all the debt tramsferred onto one card, decide how long you want to allow to repay the total. I got my debt down to $7000, and I paid it off at $500 per month. It took almost two years, but I was able to slowly climb out of the hole on my own. And, yes, I also cut up all my credit cards. You absolutely cannot keep adding to your debt. This year I got brave and I checked my credit score. I was satisfied that it was decent. And I have promised myself never,never,never, fall into the debt habit. If I really need something, like a car repair, I pay cash. Other than that,credit and debit cards are off-limits for me. I am fortunate that during this time, I had a good-paying job. I have a 17-year old daughter in high school who had jobs only the last two summers. She gets lots of credit card offers in the mail. I throw them out before she ever sees them. I had a friend whose son went away to college, took ski trips and lavished his family with expensive Christmas gifts. No one knew where he got the money. He graduated college with a $20,000 credit card bill.

    Bookmark   March 13, 2006 at 12:19PM
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There was a good column today by Bruce Williams that was partly on this topic. I think that the link below is temporary, so I'll quote some of it:

"What I think you are talking about are companies that negotiate with your creditors for lower rates of interest. While that has some merit, given the fact your credit is already destroyed, you should understand that some of these nonprofit organizations that advertise extensively not only charge you an up-front fee but also a percentage of what you are paying. While it may be that, because of their ability to negotiate with your creditors, the overall number you pay per month is less, I would be very reluctant to pay a continuing fee. The original concept of nonprofits was, the lender would pay the fees, and it would not come out of your hide. Some of the new breed do their best to collect from both ends. You might check out Consumer Credit Counseling Service in your area. They have been around for a long time and are very reputable. They might be able to put you on the right track."

Here is a link that might be useful: Bruce WIlliams

    Bookmark   March 13, 2006 at 2:29PM
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Thank you all for your advice and insight. I am going to try to negotiate with the credit card companies on my own and try to get a debt consolidation loan from my credit union or take a loan out on my tax-sheltered annuity plan. If this doesn't work, I can always revisit the idea of using credit counseling services in the future.

    Bookmark   March 13, 2006 at 2:42PM
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Chuckie, I think your idea of negotiation with the card companies and getting a consolidation loan sounds wise for now. Maybe you weren't talking to the right people before.

You got some wonderful responses to your question on the Forum, but it all was a bit mind-boggling too.

There are dozens of books to help people get out of debt. Next time you visit a bookstore, you might look through what is offered and if you see something that looks practical and helpful, buy it (with cash, please!).

I wish you luck. Sounds like you are on the right track back to financial health. It will take time though. Credit cards can just be evil!

    Bookmark   March 13, 2006 at 6:40PM
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socks 12345,

After he checks out the book(s) that he likes in the bookstore ...

... maybe if he checks the library, he can get it for free!

For use temporarily, of course.

After a couple of extensions, after a month or so, and having made some notes for ongoing reference, he may decide that he really needs this book for ready reference, on his own bookshelf.

In which case, he can buy it then ...

... after careful consideration.

No longer an impulse purchase.

Actually, the library may even have some useful books on the subject that he didn't see in the bookstore.

That he can take out, digest, reconsider ...

... and may choose to order from the bookstore.

"Two heads are better than one", they say. Even if they are cabbage.

Two resources are better than one, as well, it seems to me.

Especially when one is free.

And in many cases libraries have agreements with similar systems in the area where one can get stuff free from them, as well, via inter-library loans.

Good wishes for finding a good path out of your dilemma, Chuckie123.

Actually - you got several resource people here, as well, whose advice/suggestions may be of use to you, as well. All free, too.

Can you beat that?

ole joyful

    Bookmark   March 14, 2006 at 6:40PM
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Clarification from someone that's been through this:

What shows up on credit report is not that the payments "went through a debt management program" but rather that the debt was paid under an agreed upon amount.

This affects your credit scoring because essentially it says to someone lending you money "Well, yea...he did pay us back, but only after we negotiated down to some smaller amount. He didn't pay us what he agreed."

I can't remember what the term in on the physical report..but you'll see that it does not say "Paid as agreed". It might even say "Closed by issuer." which means they had to close it on you, rather than closed by you.

When we did this, we simply paid a close friend. No issue other than you have to reveal some of your financial life. You'll end up paying some cash to the debt managers you can afford to pay a friend a few hundred bucks! Ours had never done it before but ended up getting into it...she felt like she was "fighting the good fight."

You'd be surprised how easy it is for someone that isn't emotionally tied to the situation to do. We HATED dealing with the collections, card companies, etc (my credit was very, very bad when I got married 10 years ago) but an outsider it was just another biggie.

If you have a friend or relative, you might try that avenue.


    Bookmark   April 11, 2006 at 6:46PM
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I had a loss of income last year and I began to fall behind on a few of my cards. I called one of the credit card companies and worked out a payment plan and they lowered the interest rate to 2% (down from 21%) I have been paying the agreed amount for about a year now, and I checked my credit report recently and it that account is NOT showing up as late/negative. That account is under the "Positive accounts" section of my credit report. It does say that it is current and that I worked out an payment agreement.

    Bookmark   July 30, 2006 at 1:36PM
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