 Using a credit-counseling
service
Ask Dr. Don by
Don Taylor, Ph.D., CFA • Bankrate.com  Dear
Dr. Don,
The past few months we have gotten behind in our credit card payments.
We heard about the credit-counselor companies who can get the rates
lowered so we can pay them off once and for all. We already know
how late payments affect our credit. How does this service affect
our credit? Are there any ramifications in using this service?
Clark Credit
 Dear Clark,
When you use a credit-counseling service to structure a
debt-management plan, the accounts included in that plan are usually
noted on your credit report as "not being paid as agreed."
These creditors may also report that the payments are being received
through a credit-counseling service.
Credit-counseling services make the point that being
in a debt-management plan shows that you're dedicated to repaying
your debts, and that can be considered positive when creditors review
your report. While that's true, it will be an uphill battle to qualify
for new credit until you get a couple of years of solid repayment
history on your credit report.
In general, credit-counseling agencies expect you
to not take on new revolving credit while in a debt-management plan.
Most plans are scheduled to last from three to five years. While
you are in the plan your existing revolving credit accounts will
be suspended or closed to new charges.
Credit-counseling services help consumers by negotiating
with your creditors to agree on a repayment plan, and they may be
able to reduce the interest rate on your outstanding balances for
accounts in the plan.
Under the Fair Credit Reporting Act, a negative item
other than a bankruptcy filing stays on your credit report for seven
years from the date it was first reported. That includes the "account
not paid as agreed" listing. Bankruptcies stay on your credit
report from seven to 10 years depending on the type of bankruptcy
and the resolution of the bankruptcy filing.
The Federal Trade Commission publishes a guide,
Fiscal
Fitness: Choosing a Credit Counselor, that is required reading
before shopping for a credit counselor. After reading the guide,
check out the National
Foundation for Credit Counseling's Web site. Keep in mind that
nonprofit doesn't mean free. Understand what the agency can do for
you and what you'll pay for that service before signing any agreement.
You'll have a lot of the same credit problems
that someone that filed for bankruptcy goes through. The differences
between a debt-management plan and a Chapter 13 bankruptcy repayment
plan aren't as big as you might think, so keep that option in your
back pocket as you discuss your debt problems with a credit counselor. | 
