(Not looking for legal advice - I’m debt free today, but I’ve been over my head at times. Just looking to share experiences.)
Have you or someone you know gone through credit counseling and “debt consolidation”?
Did it work out the way you hoped?
Any surprises or things to avoid?
Funnily enough, there’s a Doper who’s just become employed at a debt counselling service. I forget her name, but I’m sure she’ll be along presently.
I’m pretty heavily in debt at the moment. Not enough to be struggling, but enough that most of my “spare” money is going into paying off debt, rather than being saved. I am dealing with it and plan to be out of debt by the end of next year, but the one thing that screwed me over was taking out a consolidation loan and then not cancelling the credit cards. I ended up overspending, taking too many expensive holidays etc, and racking the cards up again, only now I was paying £350 a month paying off the loan as well. From what I hear, that’s a very common problem.
It’s ok. It’s defintely nice to not have creditors threatening me anymore. On the other hand, although the agency tells me how much I’ve paid, they don’t tell me how much I still owe. When I’ve asked, they’ve said I have to ask the creditor directly, which is a service I would have expected them to provide. $30 a month to transfer funds seems a bit pricey to me as well. I guess the welcome package had some informative materials on how to avoid getting into debt again and to be fiscally responsible but I never looked them over. I dont know how it has affected my credit report. I suspect since it’s taking about 5 years to pay it off and bankruptcy clears after 7 years that I might have been better off declaring bankruptcy, but that felt somewhat dishonest to me.
I went to one councilor that I didn’t trust. She wanted me to do things that seemed wrong, like challenging the debts themselves and denying the debts to the credit bureaus in hopes they would never be re-confirmed. I wasn’t that dishonest so I backed out and got loans from family to pay the debt.
And if they want me to lie and cheat others, I know they will gladly lie and cheat to me!
My parents recently went through it. It seemed to take forever to set up, but they both are pleased. Mom says the company she worked with shaved several thousand dollars off her total debt. I think she means, the total amount she would have paid making X monthly payments over Y number years. At the time, though, she had a large chunk of her insurance left and paid everything in one go, so I’m not sure how much money she actually “saved.”
waves
I actually did go through the debt consolidation process with the very company for which I work. I was about $10k in the hole for credit card debt, which doesn’t sound like a lot, but I was a college student with a part-time job and I was shelling out over half of my income on credit card interest.
My experience with that non-profit company is one of the main things that interested me in working for them–because I know they are kind and reputable. They assessed my entire budget before determining whether a debt management program would be a feasible option for me, something I could afford, something that would benefit me. (They do this with every client, but let me tell you nobody gets more pissed than someone who wants to consolidate but told they can’t reasonably afford it.) They asked me about my financial goals and offered free education on how to meet them. I even got a book.
The relief from the stress was remarkable. Not having creditors breathing down my back was a huge load off. I was paying 1/4 of what I had been paying previously ever month, but actually making progress on my debts. My credit score began to improve.
Wish I could say I stuck it through to the end, but I actually got a windfall. When my husband and I married we ended up receiving more money as gifts than we could have imagined. We took all of the money and paid down our debts, which means that I ended my own debt management program about a year into the four-year plan. (Not a contract–with our company you can quit when you want.) I had no more debt to pay off.
I was determined to take that experience and learn from it though – which might be obvious just from the simple fact that I paid down all of my debt instead of spending the money on a lavish honeymoon or a new car.
My credit score has gone up over 100 points over the last year, and I haven’t had a single late payment. I just started saving for retirement and I’m actually able to track my expenses and live on a budget. In a big way I do owe a debt of gratitude to the company I consolidated my debt with, because you can’t think straight when you are in that much debt–the word ‘‘budget’’ seems ridiculous when you can’t even get a bank account in your name. (I couldn’t get a bank account in my name. That is how bad I was doing financially. One cannot imagine how humiliating that actually is unless one has experienced it. I will never, EVER forget that day as long as I live.) Because of consolidation I was able to breathe, reflect, think about where I was at and figure out how to never get back there again.
Debt consolidation saved me from having to declare bankruptcy at the tender age of 22.
Now that I work there, we get clients calling in at all hours of the day who are so depressed over their situation they are suicidal, or sobbing because they can’t stand the stress. We offer free education to everyone, regardless of whether they qualify for consolidation. We also offer housing delinquincy/foreclosure counseling, pre-purchase home counseling, bankruptcy and reverse mortgage counseling.
If anyone is interested in consolidating their debts, I would advise them to contact the National Foundation for Credit Counseling. This is the government organization who sets the quality standards for financial counseling and ensures that counselors are offering top-rate education and services. If you call a consolidation organization directly, make sure all the counselors are certified by the NFCC. There are thousands of predatory organizations out there who will slap anyone on a consolidation plan without considering the financial benefit to the consumer. The NFCC will refer you immediately to a qualified non-profit provider within your state. In fact, if you dial the NFCC number, you will automatically be transferred to a local debt consolidation organization who meets NFCC standards.
…Hope that helps. 
My husband went through a local NFCC group called Momentive … they used to be called something else, but every fake company had a name that sounded like it. We made an appointment, took in a copy of each of his most recent bills (total of about $8k), and brought along our regular monthly bills - rent, utilites, car payment, etc. First, we filled out a rough budget to figure out how much we could pay each month. Then he signed the contract and agreed to a bank account deduction of (IIRC) $220 per month. Then, they called each of his CC companies right then and there and got them to lower the rates, remove over-the-limit fees, etc. After that, we didn’t think much about it for the next 40 months. He would get a quarterly statement with an estimate of the remaining balance on each card. As each one dropped off, they re-distributed that amount to the other cards until there was only one left.
Part of the $220 payment was Momentive’s monthly “fee.” I put it in quotes because they’re a not-for-profit, and you didn’t have to pay any monthly fee, or we could have asked for something lower. He was more than happy to pay it to have someone else take care of things for him. It worked just fine. Eventually, it was all gone. It wasn’t a loan, and the accounts were so old he didn’t even have cards for them anyway, so we were never in jeopardy of running them back up. Mine on the other hand … 
We were still able to buy a house while he was repaying everything, and now we’re back to rebuilding his credit.
My husband and I had gotten into some pretty bad credit card debt, and a local non-profit (I don’t remember the name, sorry) was a big help to us. One of the things they require is that you cut up your credit cards and not apply for any new credit until you have paid off your debt. This got us in the habit of living within our means. It was much too easy to buy stuff we didn’t really need when we put it on plastic. We are completely debt-free now. Because we had already paid off the credit cards, when Mr. SCL inherited some money from his father we were able to buy a house instead of paying off debts.
Please please please tell me what you did to do this.
I started last couple of years getting my credit report and paying every one I owed money to, but now I don’t know how to rebuild. My credit is shot so no one wants to lend me money to rebuild (and who could blame them!).
Personally, I did do the credit counseling thing through Genus. They were nice enough to me, especially in a time that I needed someone to tell me it was going to be OK, but keep in mind you are paying for a service that you can do yourself. Really, if you were self-disciplined enough you wouldn’t need it so it’s a great first step to owning your own finances and financial mistakes, but when you do reach a point where you are comfortable making payments on your own and talking to creditors you can drop out and save yourself the monthly “donation.” The very best thing I ever learned how to do was to talk to someone I owed money to. That has saved me more grief, money and collection than anything else!
I’m a loan officer at a credit union, and we see / handle debt consolidation all the time. Once you’re back on track payment wise, you need to start rebuilding your credit.
The easiest way is to get a secured credit card – but get one through your local credit union. Generally speaking, credit unions will give you a secured credit card with a limit matching what you have on deposit to back the card – $500 on hold for the credit card means you get a credit card with a $500 limit. There’s generally no annual fees, etc. It’s the best way to start back up.
If you don’t have the $$ to start it right now, then wait till you get your tax return and take some of those funds.
Just remember, try not to go over 50% of your credit limit. Most bredit reports look at the amount you have available on the credit card as one of the factors of determining your credit score.
You can often get one-store cards with bad credit. I got an Old Navy card, Target, Mervyn’s, Mobil Oil, etc. with bad credit. (Be sure to get them one at a time. There is a warning flag for people trying to get too many cards at once - it may indicate an identity thief.)
And another bit of good advice: Don’t look for credit at all. Credit cards are basically evil. When you learn that you won’t want that kind of credit. You can get debit cards for the same convenience and pay as you go and not fear the bills.
Thanks guys!
Yes, I do agree that I don’t want that kind of credit card or anything, but I do want to do **something ** to rebuild credit with the end goal of being able to buy a home.
I think I’ll start with the income tax refund secured loan and maybe a gas card or something like that.
ShelliBean, I wanted to direct you to a credit forum that I found really informative for trying to help me figure out how to rebuild my credit.
Especially read the stickies on how credit scores are determined–it actually comes down to a rather simple formula, and it’s pretty easy to determine, once you know that formula, what you can do (and what you can’t do immediately) to improve your credit score.