Long story short, after a long time supporting an ex and several years of student loans, I find myself drowing in debt. I phoned a non-profit credit counselling service here in Alberta, and found out that they can consolidate my payments into one large payment that will eliminate my debt in 5 years.
To break it down. Currently I pay out about $500/month for my unsecured debt. My interest rates vary from 12.5 - 23 %. I’m paying the minimum payments, and in the case of my student loan, less than the minimum. At my current rate, assuming I don’t incur further debt, I won’t be debt free for another 15 years.
With the consolidation, my payments are $600/month for 5 years, with a 5% interest rate. Sounds good right? Trouble is, I can’t have any credit during that time (fine) but I also go down to an R7 credit rating. This will not be wiped off my credit record until 2 years after I pay off the balance. An R7 means: “Your debt payments are made under consolidation.”
What does this mean for me, practically speaking, in the two years AFTER I pay off the debt? Anyone have any experience with this kind of thing? I’m very tempted to go through with it.
I’ve heard mixed experiences regarding the non-profit credit counseling places. Mostly negatives. I thought about doing that as well (before I began hearing all the negative reactions and experiences), and I called a couple of them to see what they could do… Come to find out, they couldn’t do anything that I couldn’t do myself–and it wouldn’t cost me anything to do it myself. Probably the most important, I called all the credit card companies and told them that I was considering filing bankruptcy (I wasn’t really) if I couldn’t get my payments under hand. It was amazing how quickly they jumped in to lower my interest rates, and lowered my payments to help me get “caught up”. Plus, on one of the cards where I was over the limit, they took off the penalty fee. I also officially closed every single account. I still have to pay off the balance, but it lessens the chance that I’ll be tempted to make “one small purchase” on an account. (I haven’t charge in years on any of them, but it made me feel more secure to know that the account is officially closed.) Now I’m able to make payments slightly higher than the minimum (not much, but every bit helps), at a lower interest rate, and slowly, I’m getting them paid off.
Unfortunately, the about the only thing I know of to get the debt paid off, is to simply pay it. Having a bad credit rating though, sucks major. I’m dreading the day my 10 year old car bites the dust because I know my credit rating is so bad that the likihood I’ll be able to get another is next to nil. (I paid cash for the one I’m currently driving.)
A word of advice–check the fine print with the consolodation places. the ones with whom I spoke wanted a “small monthly fee” to oversee the consolodation, and it equaled to about $50 a month. That $50 a month is now going directly to the credit cards to pay off the balances. A friend of mine did the consolodation thing, and she was notified by the credit card companies that her payments were not made–three months worth! she went through a heck of a battle with the loan place to get the payments made.
If your credit is currently “good”, I would approach a bank before I signed on the dotted line with a cosolodation company.
Personally, I’ve been really impressed with CIBC - they seem willing to bend over backwards to help out, and if your credit is ok, I would see about getting a consolodation loan from them, or your primary bank (if that’s not them).
Assuming you have an income, and the payments won’t be 110% of it, I think that would be a safer bet. Then you have no ding on your credit report, assuming you pay the loan, and you may still be able to purchase a car or home with that bank, depending on your other circumstances.
I’m just about in the same situation, Rebekkah. Between my husband and myself, we have alternated being unemployed practically since we met, and our debt seems to do nothing but go up, no matter how disciplined we are.
I talked to a bunch of banks about a consolidation loan, but they weren’t interested in giving us one (my job, while it pays really well, is contract). I also talked to my bank about increasing my fairly low interest line of credit, and when they learned it was for debt repayment, they wouldn’t do that either. I learned that if you want to increase a line of credit with a bank, the correct reason for doing so is “home improvement”, regardless of what you actually plan to do with the money.
I’m curious too about anybody’s experiences with OPD (Orderly Payment of Debt). I think I will try to get my interest rates reduced before I go there, though.
Oh, another bit of advice is that your credit rating takes a ding every time a bank or credit card company does a search on your credit rating. If you want to go the consolidation route or something similar, be aware of that and try to get the bank to pre-qualify you before they actually order up your credit report. But don’t count on getting one; as I learned at the Debt Management seminar that Alberta Credit Counselling offers, banks don’t particularly like giving consolidation loans out.
Rebbekah - do you own anything? You know, a home, a car, anything? You will have a much easier time getting a loan if you have some sort of collatoral to put up against it.
Or how about a cosigner? A parent? A sibling? A spouse? (I assume from your OP, not the last one.)
RUN, DON’T WALK, to a local bank…if you have something to put up for collatarel(sp?), get a consolidation loan. Don’t take no for an answer…help them find a way to do it.
The debt consolidation companies are pretty much a last resort…it still, in fact, ruins your credit for a long time, and does pretty much the same thing the bank consolidation loan does except that you stay in control.
Do you have any credit cards whose rates are lower for transferred balances? If you do, and can’t get a consolidation loan, transfer amounts to those. The key is to minimize interest as much as possible.
If you have any combination of these, the banks won’t help you:
-new job
-new address
-employment anything other than standard 9-to-5 employee (consulting, contracting, commission, etc.)
Do you know any more about this, Featherlou? I’d love to know exactly how our credit compairs on a national scale, but I’m nervous about those “free credit report” websites and whatnot. Used to be all my spam was about those things. But I really want to know. Is there no way to check safely? Or to check without being penalized?
Thanks.
PS: is anyone heavily into automatic payments that withdraw electronically every month? I have a few of these for subscription services like Netflix, but I’m nervous about getting it for every bill. Somehow seeing the electric bill paper gives me a better sense of control. But, I heard that making payments on time was the best way of improving your credit rating and sometimes it’s hard remembering to get the post out. Advantages/drawbacks of automated pay? Any other ways of improving your rating, or is time the only cure?
I’m actually talking to the same place you mentioned here in Calgary. Unfortunately, after busting free of that bad relationship, I have a new job and a new address. Thank you so much for your advice.
For everyone else who posted, I’m sorry I wasn’t able to get back here until now. I really appreciate everyone’s advice. I’m sort of at my last resort.
I don’t own anything, and I am heavily up to my ears in unsecured debt. The lowest I could get my credit card company to reduce my interest rate to way 12.5%
So, the agency I’m in touch with is a non-profit, gov’t sponsered deal. As far as I know, they aren’t charging me for this? I have to look into it more. After much consideration and weighing everyone’s advice, I filled out the initial application… we’ll see what happens.
No cosigner, my parents are as broke as me, and no rich spouses (at least until my brother graduates with the Chartered Accountant, and then I DO plan to sponge
I have no collateral. No house, no car, no nothing. Unless over $8,000 in university text books counts
Applying for credit and companies doing inquiries into the credit report does not actually change your payment ratings. What it does is show up as inquiries on your report. So, if you are applying for lots of credit and there are many inquiries, the company who is checking may wonder why you need so much and look at your report in a slightly different light.
You are entitled to a FREE copy of your credit report. Simply fax a copy of two pieces of id and a signed letter requesting your report to Equifax…they have a website. They will mail you your report. You should do this every six months to make sure your credit report is accurate.
A brief overview of how credit reports are constructed: they obtain the information from anyone you have financial dealings with. If you look at the small print at the bottom of any financial agreement you sign, you will see a sentence similar to: the undersigned agrees to sharing of credit information and that this information…blah, blah. Every 30 days, the financial institution submits their a/r and it is electronically assigned to individuals. Then the credit reporting company CHARGES other companies to obtain that information.
It is important to note that credit reporting companies do not take responsbility for making sure the information is accurate, they only report it. So it is your responsibility to ensure your credit reports reflects accurate information.
Here ends today’s lesson on credit, ahem.
P.S. May be different in u.s. - this is for Canada.
I applied for the program and phoned the office tonight to ask a few more questions. Thought I’d share the information here for anyone who is curious.
There is a one time fee of $50.00 to file your court papers and set up the payments with the people you owe money to.
There is a processing fee which works out to $150/year ($25 every two months). Seeing that my student loan (just one!) accumulates $73 in interest every MONTH, I think this is a good deal.
The only criteria they look at to offer this is whether or not you can pay the consolidated loan amount without leaving yourself short for day to day living.
There is no fixed loan term. If I can manage to pay off everything in less time, then my credit will start to rebuild sooner.
You cannot get a student loan while on the program.
That’s all from me, I’ll pop in to update again when I have news
I have my fingers crossed that I get this. The idea that I might be debt free in 5 years has me dizzy.
Thanks for the advice, but I can’t seem to find where Equifax offers free credit reports. This is the only thing I could find on their website, and it says that there is a $9 fee. Not that $9 will bankrupt me, but I want to make sure that I’m doing the right thing.
The Canadian version of the site alo charges for reports. Do I have the right company? Or if I just fax them, it’s free, but using the website has a charge?
The US just instituted a program where you can get one free copy of your credit report a year from each bureau (Equifax, Transunion and um, the other one (!)), but it’s not available in all states yet.
Ardred declared bankruptcy earlier this year and has deferred his student loans for another year. His declaration cost him $900 in lawyer fees (paid over time) and ~$200 in court fees. He decided to keep paying on his car (the only debt he kept).
Bankruptcy is a viable option if your situation continues.
About credit reports: I believe you can get them free everywhere in the US if you’ve been refused credit. Otherwise you’ll have to wait until the free annual credit report goes into effect for your state. IIRC they’re implementing from west to east.
I pay just about everything that way. I love knowing that all my payments will be on time. Advantages are that: 1) your payment is always on time, 2) you don’t have to spend time writing checks and mailing payments, 3) you don’t spend money on postage for mailing them. The only disadvantage I can think of is that if you’re on a tight budget, you have to watch closely to make sure you have enough money in your account to cover the payment. And, yes, as far as I know, time really is the only cure for a low rating.
You have to dig around a bit, it’s in small letters and you have to click over a few places. But here is the file (PDF) Just print it out, photocopy 2 pieces of ID and they will send you yours.
Which reminds me I should look at mine. I’m damn sure I only have one bill on there (I’ve paid off my others gotten thanks to a wonderful ex) but when I sent in the stuff before I never heard back.
I was on one of these programs for a while, then quickly jumped ship and dealt with my creditors personally. Here’s my advice.
COURT PAPERS? What for? If you’re consolidating debt, you shouldn’t need court papers AFAIK… though things may be different in your state, but that just sounds bogus.
A $150/year processing fee in addition to the one-time $50 processing fee, eh. When I was on a program, my non-profit organization’s share came about to about 20% of my monthly payment, so that may not be but so far off.
Other than that… eek, I wouldn’t do it. If it’s just a student loan, then try to work it out with the loaners. Or get a federal student loan consolidation. If you have revolving credit, ie: credit cards, then call the companies up and tell them that your financial situation has gone to hell and you’re about to file bankruptcy. They will walk all over themselves accomodating you.
As has been noted in this thread, debt consolidation companies don’t do anything you, yourself, can’t do just by calling up the creditors and talking to them yourself. I learned this out after about 6 months of being on a program.
I went to the Debt Management Counselling seminar they offer, Rebekkah, and it was very informative. I learned that in Canada, bankruptcy DOES NOT absolve student loans, that you can phone a 1-800 # to get your credit report from Equifax for free (I phoned a couple of days ago - I should get it in the mail soon), and that what most people here are saying is right - you can do this on your own, it will just take A LOT of discipline. My husband and I are trying to pay off our debts, and it is taking a long time, and a lot of discipline, but I believe we will get there. My next step is to talk to our credit card companies and ask for reduced interest rates.
One other thing I’ve learned is that you have to keep the money coming in somehow. Even if you’re working for minimum wage between good jobs, you have to have money coming in if you have debt, or you will never, ever get ahead.
Thanks so much for the link, Flutterby. I’ll send one now and make copies for the future.
And Thanks for the advice, Gardentraveler. Our finances are improved now, but not fantastic. I think I’ll keep using the paper statements so that they remind me just where I can cut corners if needed. While things are good, I’ll send a check as soon as the statement comes in. If things get sticky, I’ll send the check 7 days before it’s due, which worked maybe 80% of the time before.
Until my score is better, I’ll follow the old adage:
Og grant me patience, but hurry!
