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Dorothy Rosen -- The Dollar Diva Ask the Dollar Diva

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?

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.

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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

-- Posted: May 17, 2001

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