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What to expect in credit counseling
Dear Dollar Diva:
We consistently spend more than we earn and owe about $40,000 on
six credit cards. We have consolidated our credit card debt in the
past and want to do it again. What is the best way?
Are the nonprofit consumer credit counseling services
advertised in the Yellow Pages reputable? If so, what should we
avoid, expect, look for and ask about?
Jackie
Dear Jackie:
The Diva reminds you that the definition of insanity
is doing the same thing over and over again and expecting a different
result. Do yourselves a favor. Cut up five of your credit cards
so you're not tempted to use them any more, and put the sixth one
on ice. From this day forward, toss all new offers for credit in
the garbage.
Read the Diva's "How
do I get rid of credit card debt?" for some sound advice on
breaking the debt habit.
Consumer Credit Counseling
Services
The nonprofit Consumer Credit Counseling Services (CCCS) are reputable;
look for one that's a member of the National Foundation for Credit
Counseling (NFCC). Go to the NFCC
Web site to find an agency in your neighborhood.
Avoid anyone who makes you promises that sound too
good to be true. Expect to have the counseling show up on your credit
report. Look for someone you feel comfortable working with. And
ask about the various plans and services the agency offers.
Don't expect your loans to be consolidated and spread
out over a long period so you'll have more cash in your pocket to
fritter away each month; that's not what CCCS is all about. It's
about consumer support and helping you get out of debt as quickly
as possible.
What do the CCCS agencies
offer?
The CCCS mission is to help overzealous consumers like you deal
with credit issues. Here are some of the ways they do it:
Counseling: A counselor
will review your current financial position and help you develop
a plan to get your bills paid off.
Education: There
are education programs for everyone from elementary school students
to adults. You can learn how to plan for emergencies and what
you need to know before buying a home. If you are having problems
making your mortgage payments, a counselor can help you get back
on track.
Debt management:
A counselor will negotiate with your creditors to lower interest
rates and remove late and over-the-limit fees. The counselor also
will tell them to stop making those nasty phone calls.
As part of the debt-management process, your counselor will help
you set up a debt payment plan and tell you how much you need
to give CCCS each month so it can make the payments for you. These
agencies like to get the debts paid off quickly, and you'll be
expected to tighten your belt several notches to make it happen.
The Diva urges you to make sure your bills are actually being
paid as scheduled if you choose this option. It's possible for
an understaffed agency to make a mistake, and you don't want to
start getting collection calls again.
Not all agencies offer all services, so ask before
you make an appointment.
How much does it cost?
CCCS services are free, or very cheap. There is no charge for counseling,
but because of the time involved, an agency might charge a small
fee for a debt-management program.
Fees are nominal because most of CCCS's funding comes
from the same forces that are harassing you to pay those overdue
bills -- banks and other large lenders. It's a win-win situation
when it works. You get your bills paid off and the lenders get their
money.
The new Bankruptcy Reform Bill
CCCS counseling is considered the last stop before
filing for bankruptcy, but it's voluntary. If you believe it will
take more than one lifetime to pay off your debts, you have the
option of going directly to bankruptcy court for relief.
Expect this to change in 2002 when the
new Bankruptcy Reform Bill is passed. Credit counseling will
still be the last stop before filing for Chapter 7 or 11 bankruptcy,
but it will be mandatory. You'll have to meet with a credit counselor
before you're able to tell your troubles to a judge.
-- Posted: May 17, 2001
 DOROTHY
ROSEN has a master's degree in finance, with a specialization in
accounting, from the Kellogg Graduate School at Northwestern University
in Evanston, Ill. Rosen has more than 15 years of experience in
the financial arena, serving in Illinois and Florida as a certified
public accountant, financial consultant, expert witness and educator.
She is owner of Dorothy Rosen, CPA, a public accounting firm that
serves individuals and small businesses.
-- Posted: May 17, 2001 |
