I'm trying to help a buddy of mine get out of credit card debt

In My Humble Opinion
21

I know everyone advises against credit counseling services, but I found a great non-profit one that I’ve been with for over a year, and they’re fantastic. The plan they have me on will pay off my debt (which was around $10,000) in another four years, but as soon as ElzaHub is gainfully employed again, we’ll start increasing the payments that we make to them so that it can be paid off in another 2 years or so.

For me, it was the best option - I can no longer use my credit cards (I have a Target card that I use, with a very low, low limit so I can pay it off monthly), so getting a debt consolidation loan might’ve just screwed me over because I could use my cards again. I’ve learned how to live without my cards and live on what we bring in each month. I don’t have that reliance on credit cards any longer - I’ve learned better how to budget for things I want and if I can’t afford them in cash…well, I just don’t get it at that particular point.

I think the important thing with a credit counseling agency is to use a non-profit - I do pay a fee each month, but it’s like $6, and working for a non-profit myself, I have no problems chalking that up to administrative fees so that the people who work for them can get paid. They’ve paid all of my bills on time, the collection calls have stopped, and I don’t dread the phone ringing anymore.

I did a ton of research on which agency to go with, though, so I’d advise your friend to do the same if he decides that’s the way to go. I couldn’t have gotten a loan to pay off my cards because my debt-to-income ratio was too high, so credit counseling was a good option for me.

E.

22

This isn’t legal advice, I take no responsibility, & etc., standard disclaimer.

If he’s to the point where the debt has been sold to a collector that masquerades as a law firm, have him or his lawyer call directly and work out a deal. I do these sometimes for friends of friends, I’ve yet to have a client pay a penny of interest, and I can always reduce the principal substantially.

As long as he doesn’t care about his credit rating or being sued, he can make those cockroaches sweat. The “law firms” buy bad debt in bulk for pennies on the dollar from the credit card companies, and if you can improve on that they’ll always take it.

23

O/T, but congrats! What finally motivated you to take control of your life?

24

Well, I didn’t really snap out of it all at once; it was a bunch of things that finally nudged me back into a healthier perspective. Realistically, I finally got a good therapist who helped me focus on the baby steps I needed to make to get myself out of trouble, a decade-long search for the right mix of antidepressants finally yielded some fruit, I had to borrow money from my sister to pay my taxes, and a friend of mine commented that he was amazed that I hadn’t lost my job considering all my absences. Also, I turned 40, and was really pissed off at myself for arriving at middle age with such a pathetic lifestyle.

When you’re trying to attack a debt that large, it’s like steering the Titanic. I had to cut everything down to the bone and resigned myself to a very ascetic lifestyle until things turned around. I kept a ledger with every penny of debt accounted for and would look at it pretty much every day to gauge my progress. I basically dropped off the face of the earth in terms of social activities (since virtually all seemed to involve my spending money), and I stopped visiting relatives in other states.

In February of this year, I ran out of debts to pay off. (The last one can only be paid off in full, not by increasing my payments, so I’m just saving up). Within the space of two weeks, I got a tax refund, a yearly bonus and a big Flexible Spending Account refund, and it seemed like I’d abruptly crossed over into The Land Where Money Rains Down from the Sky. It was disorienting and very pleasant to see that, when I didn’t need to use every penny to pay off debt, how quickly the money started piling up in my bank account.

I’m worried about becoming complacent, so I’m very cautious about declaring victory. When I hit zero debt, I plan to celebrate by buying myself a CD (the kind that pays interest, not the kind that spins around).

25

First of all, thanks again to all those who replied. I appreciate the great advice and stories/examples posted, and have tried to pass on this great info to my buddy.

But, (unfortuantely?) he’s made a somewhat different “decision”. He is either in the process of getting set up with, or already set up with, some kind of debt consolidation outfit. This was something recommended to him by a co-worker, who said 3 of his friends had used it successfully (but with debts of about 1/2 of my buddies). I’m having a little bit of a tough time getting all the details about this company out of him, I’m not sure if he doesn’t know or doesn’t want to explain it all.

It sounds like the whole idea is that he pays this new company a monthly payment towards resolving his debts and they take care of or negotiate paying them off. FTR he has 2 cards that he is doing this with (one with 15K and change on it, one with 1K and change, total 17K give or take). If I follow him correctly the deal works like this:

*He is now paying the debt company (Company X) $500 an month towards resolving his debts. His payments with the cards had been like $300 and $100 a month or so.

*Company X is applying these payments towards some kind of account with the goal of paying off his debt.

*He will still have bills from his 2 cards coming in, but from now on he should basically ignore them or at least not pay them, and instead direct them to talk to Company X.

*At some point the credit cards will settle up with Company X, and he’ll be off the hook for his debts at that point. Basically, I think he and Company X plan on the credit card companies just settling on some amount less than what he owes as payment just to get this whole debt taken care of. He is planning on this taking a little over 2 years.

Now, he is pretty much under the impression that this will screw up his credit for the next 2+ years while the whole deal in in process, but once the credits cards settle up with Compnay X his score will return to normal. Basically, he thinks this is a much better alternative to bankruptcy, which he sees as his only other option I guess.

Does this system sound at all legit? To be honest, I could be explaining it wrong, but it does sound weird/shady/dumb to me. Any ideas of what he’s trying to do here? Does this sound at all like a smart move? If anyone has any questions, I will try to answer as best I can, but like I said I really don’t have a good grasp on this whole deal.

26

[QUOTE=groo]

[ul][li]. . .That last $7K is at 4%, so I officially stopped losing sleep over my debt about three months ago.[/ul] [/li][/QUOTE]

First of all, congratulations – Great Job!

Since you can’t pay down the debt that you’re carrying at 4%, and can only save until you have enough to pay it in full, if you haven’t already, I’d recommend looking into one of the online savings banks for that. We use Emigrant Direct, where the current interest rate they’re paying is 4.65%. Obviously the savings balance that’s earning interest will be smaller than the balance of the debt you’re paying interest on, but as you continue to add to the savings balance, eventually you should at least come close to earning almost all the interest you’re accruing on that debt – or at least a significant portion of it, and certainly more than anything you could be earning in a standard passbook style savings account at a brick and mortar bank.

27

Blunt, that sounds like an orderly re-payment of debt plan. It is not a scheme or a scam; it is a step somewhere between re-paying yourself and going into bankruptcy. I wish him the best of luck with it, and hope it all turns out well for him.

28

Great, thanks for the info. I’m glad to hear that this is more legit that I had thought. To be honest, it sounded shady or maybe even a scam to me, but I’m sure it is just because I didn’t understand completely. Another friend and I were trying to convince my buddy against this plan, but it sounds like it may not be as bad as we’d thought.

29

Actually, it will screw up his credit big time and for a lot longer than he thinks. He should go over to the Credit Boards forum (a independent credit forum with lots of users who have lots of experience with credit recovery, bancruptcy, credit agency collections, etc.) and consult over there but it may be too late now. He needs to get out of this deal and arrange his own lower interest rate loan to pay off this debt.

Here’s what’s going to happen up with what he has now. Everytime he ignores a bill, he gets a ding on his credit. 30 days late, then 60 days late, then the real killer, more than 90 days late. Those totally kill your Fico score. Eventually, the credit cards will be sent to collection and the accounts will be reported as “charge-offws” which means the credit card company sees no hope of ever collecting and sells the debt to a collection agency.

That’s where the credit “counslers” step in. They say to the collection agency "hey, we’ll settle this debt for something like ten cents on the dollar. The collection agency takes it 'cause at least they get some money. Your friend, meanwhile, is left with multiple massively late payments on his credit report and the dreaded charge off. All of those will stick with him for seven years. He will find it ipossible to get new credit cards, a mortgage, or a new car loan even at the worst interest rates.

But, wait, you say, it’s going to be noted on his credit report that he’s in credit couseling. Makes no difference. In fact, the lenders hate that even more with than bankruptcy. They know that at least with bankruptcy, you can’t file agian for another seven years (or that’s the way it worked under the old laws). With what your friend has set up, the lenders have no reason to think he won’t just do it again.

There are legit credit counseling agencies out there. The best ones require you attend multiple credit couseling sessions, not just the minimum required by federal law. They tell you all their fees up front and what they are for. And, you know exactly when your creditors are being paid and what deals have been worked out, you’re not just ignoring bills.