Have any of you all used a credit-counseling service (i.e. Ameridebt)? How was your experience with it? Did it help or hurt?
I’m talking about the kind of service where they negotiate a deal with your creditors (lower interest usually) and you pay one monthly bill to the counseling service. How is this type of service compared to going for a debt-consolidation loan?
I have taken the first steps with a credit counseling company myself (though haven’t yet commited to anything) and was wondering what to expect.
Here’s the first thing that raised a red flag in my mind: they seem to expect a monthly “donation” to their cause to handle your accounts. It’s not a big amount at all ($6.00 per account handled), but I’m leery of the way this contribution is falsely stated to be “voluntary” in their contract – yet the contract is full of language like the following (quoted verbatim):
"I further understand that in addition to the one-time “counseling” contribution, I have also been requested and agree to make a voluntary “monthly” contribution of $6.00 per month per account that XXXXX Credit Counseling is handling for me."
What’s tricky about it is that on the phone, their reps outright say “you don’t have to pay this contribution”. They even quote you a monthly payment that excludes the monthly contribution. But look at the contract language above! Someone is lying somewhere.
Generally, they are okay, but you can accomplish some of the same things if you want to do the legwork.
Some services are funded by large credit card companies. Their motivation? To get consumers to actually pay something back, because many of the consumers would wind up being people who default on the cards and/or file bankruptcy otherwise.
If you want to do the legwork, call your creditors and work out something. If they fear you will default, they should work with you.
Credit counseling may not save your credit profile, since many of the negotiated payments are not as per the original agreement, and your accounts might show as slow pays. Although, slow pay is better than no pay.
Generally, if you are bright enough, you can handle the legwork yourself, and get different terms with your creditors. However, for some people with no discipline, you might need counseling (keeping in mind who funds them).
Get a copy of your credit report from the three national credit bureuas:
I’ve been seriously wondering about these outfits and I’ve been meaning to ask in GQ so I am glad you’ve brought this up.
I wondered how these “non-profit” credit counseling organizations (as they say they are) can afford to advertise in big-time media outlets as they have been lately. I’ve always been familiar with the Consumer Credit Counseling bureaus, which seem to be the usual low-profile public good office that people might point you to, or that you might see a brochure about. Or you might hear a PSA about. But never a big loud ad during prime time.
Philster’s response makes this clearer, but I’ll be reading additional posts with interest
I’m currently using Consumer Credit Counseling Service to pay off debts. Should be debt free (with the exception of the new car I bought in November and my student loans) by October.
As for your questions: I’m talking about the kind of service where they negotiate a deal with your creditors (lower interest usually) and you pay one monthly bill to the counseling service. How is this type of service compared to going for a debt-consolidation loan?
Obviously, a debt-consolidation loan is a loan. A credit counseling service is not a loan, and therefore is not dependant on how much equity your home has on it (which is what most bill-consolidations really are - home equity loans, if I understand correctly). I couldn’t get a bill consolidation loan because I’m not a home owner, I rent. So I went to CCCS, who worked out deals, most cases cutting the credit card interest from 17% to 0% or 2%. But the service loans you no money up front.
Here’s the first thing that raised a red flag in my mind: they seem to expect a monthly “donation” to their cause to handle your accounts.
As I understand it, most credit counseling services are non-profit, but what they do requires money to run things. What happened in my case was that after 6 months of paying, they sent me a letter asking if I would agree to pay an extra $10 a month to help cover expenses. If I agreed, I just had to simply sign the letter and send it back and the $10 would be reflected on my next bill. If I did not agree, just throw the letter away. The letter was definitely worded in a way that said I did not have to pay if I didn’t want to.
However, your contract seems to be worded differently than mine. If you’re unsure, take it down and talk to someone in person about it. Point out the specific points of the sontract that have you puzzled. And I don’t know how in debt you are, but if you’re anything like I was $6 a month is nothing compared to the monthly interest of the credit card bills – Interest which in almost all cases was waived. (Out of 5 credit cards, I’m only still paying interest on 1 of them, and that’s been knocked down to 2%)
Crunchyfrog, CCS sounds like a better deal. The company I’m dealing with can only get the interest rates down to around 12-14% (from 24-25%). Plus, they charge $6 PER ACCOUNT per month, so that’s $48 a month for me – in “voluntary” (?) fees. PLUS, the company is located over 1000 miles away, so there isno face-to-face with them.
There IS a CCS office in my town, so that seems to be a good option. Never hurts to comparison shop, right?
Thanks to everyone for responding. I definitely appreciate any and all advice anyone may have about this kind of thing.
Yikes. I wouldn’t trust that set up at all. Before I tried CCCS, I worked with a place like that. I ended up further in debt than before. Comparison shopping definitely seems called for here. And when you said $6 per account, I didn’t realize you meant each credit card account! The way it works with CCCS is I have one account with them, my account. Not a MasterCard, Visa, American Express, and Neiman-Marcus account. All my debts count as one account, so that $10 extra a month I’m paying (yes, I agreed to pay it) is a flat rate.
I second Crunchy’s statements. I was with CCCS for about five years (big debt). Got out from under in October, paid $700 per month (my decision) including the admin fee, and it saved me from worse things. I was better than $25K deep, so it took me a while (divorced the bitch while I was at it, too) but I am way cool right now. These guys are not wheeler and dealers, they are legit, and no loans needed. Beware, SEARS is a bastard when it comes to this kinda thing.
A few years ago we applied for a loan and our credit report said that we were delinquent on a Sears accout. We have never had a Sears account. Never.
My husband and myself have pretty common names Thomas and Cynthia. When I contacted Sears and told them the report was in error and that perhaps they had us confused with another Tom and Cindy they assured us that they do not make mistakes. After verifying address, birthdate, ss numbers etc., they conceded that perhaps they were mistaken but did not want to ammend the report “just in case they were right”.
It took numerous phone calls, letters and finally a little note from our attorney threatening legal action before they would admit they had the wrong people and write us a letter for our loan officer to that effect.