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Is credit counseling a good idea?


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Due to events that happened in 2020 and this year, I have high credit card debt. I was able to pay off half of the amount when I sold my house (I'm now renting), but I still have a ways to go. Except for one late payment on two different accounts a year ago, my credit is good. The problem is the balances are high (57% utilization) and I'm not making enough money with my job to pay them down. If fact, I'm now at the point that I'm going to have trouble making even the minimum payments.

 

So I thought about using a credit counseling service to possibly lower the credit card amounts as well as lower the minimum due until things turn around for me. Is this a bad idea?

 

Does using a credit counseling service lower your credit score?

 

Any advice before I start being late on payments soon?

 

Thanks in advance. 

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6 hours ago, mmartin028 said:

Due to events that happened in 2020 and this year, I have high credit card debt. I was able to pay off half of the amount when I sold my house (I'm now renting), but I still have a ways to go. Except for one late payment on two different accounts a year ago, my credit is good. The problem is the balances are high (57% utilization) and I'm not making enough money with my job to pay them down. If fact, I'm now at the point that I'm going to have trouble making even the minimum payments.

 

So I thought about using a credit counseling service to possibly lower the credit card amounts as well as lower the minimum due until things turn around for me. Is this a bad idea?

 

Does using a credit counseling service lower your credit score?

 

Any advice before I start being late on payments soon?

 

Thanks in advance. 

 

Hopefully someone with experience can chime in on credit counseling. Most of those programs are turds and do more harm than good. Not all, just most.

 

What happened in 2020?

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Thanks for the reply.  As much as I'd love to, I tried and got denied by all but one (pre-approval). The problem is the credit utilization being high and the two lates I had.  When I started paying off some of the cards after selling the house, the cc companies were lowering my limit which really screwed with my utilization. The more I paid off, the higher my utilization. That's pretty messed up.

 

I did get pre-approved with one loan place (Upstart) and the interest rate is something like 22%. I would save about $250/mo paying the loan as opposed to each card I could pay off, but that still might not be enough. I may do it anyway since it's better than nothing (unless the credit counseling thing works out).

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5 hours ago, TheVig said:

 

Hopefully someone with experience can chime in on credit counseling. Most of those programs are turds and do more harm than good. Not all, just most.

 

What happened in 2020?

 

Me too. I'd hate to go through all this and get screwed in the end. If someone could give me a name of a reputable company, I would greatly appreciate it.

 

As for 2020, right before Covid hit, my son got cancer so we had a bunch of medical bills to pay. The deductible alone was over $9,000. Thanks insurance companies. Then a month into Covid, I lost my job and our state only paid $230/week unemployment. Yeah, there was the extra Federal money, but that still wasn't enough. My wife has a video business and does a lot of weddings and events. Sure enough, because of Covid, all of her gigs got cancelled so there went another substantial amount of income. We were basically living off credit cards until I finally found a job, but it doesn't pay as much as I used to make.  So basically, 2020 was the perfect storm financially for us and we're still trying to dig out of it.

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5 hours ago, mmartin028 said:

 

Me too. I'd hate to go through all this and get screwed in the end. If someone could give me a name of a reputable company, I would greatly appreciate it.

 

As for 2020, right before Covid hit, my son got cancer so we had a bunch of medical bills to pay. The deductible alone was over $9,000. Thanks insurance companies. Then a month into Covid, I lost my job and our state only paid $230/week unemployment. Yeah, there was the extra Federal money, but that still wasn't enough. My wife has a video business and does a lot of weddings and events. Sure enough, because of Covid, all of her gigs got cancelled so there went another substantial amount of income. We were basically living off credit cards until I finally found a job, but it doesn't pay as much as I used to make.  So basically, 2020 was the perfect storm financially for us and we're still trying to dig out of it.

 

I hope your son beats cancer. Very tough situation.

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5 hours ago, hegemony said:

there are a few, non profit organizations that can help but most are no good. Even the good programs ruin your credit while you are in them; but then it sounds like you need to focus on finances first and credit second.

 

BK laws exist for a reason.

They ruin your credit? I thought I read that they don't affect your credit scores.

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4 hours ago, mmartin028 said:

They ruin your credit? I thought I read that they don't affect your credit scores.

Too many of the programs have their 'clients' stop making payments, even on accounts with whom they were current.  They have you pay the counseling entity like a savings account and then they offer some sort of a settlement.  Often, if you get sued, you are on your own. 

 

The commercials telling you about "what creditors don't want you to know" ALSO don't tell you that their program screws you over six ways to Sunday...

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I have analyzed credit files since the credit bureaus were nothing more than a local organization in the applicant's county seat.  Then they went regional, and then national.  As a credit analyst, we were taught that consumer credit counseling was the next step on the way to declaring a bankruptcy.  So, in my opinion, Consumer Credit Counseling has a negative impact on a consumer credit file.

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6 hours ago, mmartin028 said:

So basically, 2020 was the perfect storm financially for us and we're still trying to dig out of it.

We went through our own perfect financial storm in 2015.  Ours involved a car wreck and job loss instead of cancer (though we've been through cancer too).  Thought it would never end.  It did and it was tough digging out but come summer of 2022 all the 60 and 90 day lates will be gone from all 3 CRs.  Like you, almost all the equity from selling the house went to obligations and we went from homeowners to home renters.

 

We looked at the YWCA credit counseling program.  Obviously they aren't scammers like the companies that tell you to stop paying, then negotiate after going 6 months past due.  If I recall, they would negotiate much lower interest rates and low payments with all your credit card companies.  But (I think) they required the credit cards to be closed - my memory is fuzzy.  But the only reason we didn't go that route was because I got a rather good paying job and we decided the cons outweighed the pros.  YMMV.

 

Good luck man!

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On 9/27/2021 at 11:58 AM, MarvBear said:

I have analyzed credit files since the credit bureaus were nothing more than a local organization in the applicant's county seat.  Then they went regional, and then national.  As a credit analyst, we were taught that consumer credit counseling was the next step on the way to declaring a bankruptcy.  So, in my opinion, Consumer Credit Counseling has a negative impact on a consumer credit file.

 

Thanks for the reply and your experience in this situation. I can see Credit Counseling being a negative when you put it that way.

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On 9/27/2021 at 12:42 PM, A Credit Ed said:

We went through our own perfect financial storm in 2015.  Ours involved a car wreck and job loss instead of cancer (though we've been through cancer too).  Thought it would never end.  It did and it was tough digging out but come summer of 2022 all the 60 and 90 day lates will be gone from all 3 CRs.  Like you, almost all the equity from selling the house went to obligations and we went from homeowners to home renters.

 

We looked at the YWCA credit counseling program.  Obviously they aren't scammers like the companies that tell you to stop paying, then negotiate after going 6 months past due.  If I recall, they would negotiate much lower interest rates and low payments with all your credit card companies.  But (I think) they required the credit cards to be closed - my memory is fuzzy.  But the only reason we didn't go that route was because I got a rather good paying job and we decided the cons outweighed the pros.  YMMV.

 

Good luck man!

 

I guess misery loves company. Sorry to hear you had to basically go through the same thing. I'm glad to hear you worked your way out of it and you're doing fine now. I hope to be in that same situation soon too.

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Just to give everyone an update. I was able to get a loan to pay off the rest of the credit cards. It will basically cut my monthly payout in half compared to what I was paying per month just on the cards.  So with some serious budgeting (not that we weren't already doing that) and trying to do some side hustles to bring in more income to pay off that loan, I hope we'll be back in shape in the next year or two.

 

Thanks to everyone here for your wisdom and keeping me from making a huge Credit Counseling mistake. 

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9 hours ago, mmartin028 said:

I hope to be in that same situation soon too.

My biggest mistake was not starting to rebuild my credit back then.  I went about 5 years without applying for a single thing, even easy to get low-limit starter cards.  Luckily I have some well aged cards that are still in use, and some closed cards with really long histories that will be reporting for the next 4-8 years. 

 

Good luck my friend, I think you've got this!

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