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Dear Debt Adviser,
I appreciate your column. It is very informative. I was wondering if working with a credit counseling service to lower your interest rate affects your credit score. While our scores are good (715-730), we overextended ourselves and the interest/finance charges on our credit cards are outrageous (29.99 percent in some cases). Our goal is to get the balances down as much as possible. I know not using the card will be one of your suggestions, but it will take much longer because anything extra we pay is eaten up by the interest. Please help!
— Marie

Dear Marie,
Thank you for the kind words. I’m glad you enjoy the column. Let’s see what we can do to answer your questions and improve your situation.

First, with a credit score of 715 to 730, you should qualify for a credit card with a much lower interest rate. If you have not received balance transfer offers from other credit card issuers, I suggest you look at Bankrate’s balance transfer cards to find a card with a low or no transfer fee and a low interest rate. You may be able to transfer at least some if not all of the high interest rate balance to the new card. This will help with your interest rates, but not your balances.

For that, contacting a nonprofit credit counseling member of the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies has merit. A certified counselor will review your finances and help you sort through all your options. The counseling is confidential and neither your creditors nor FICO will know about it. A debt management plan (to pay off your balances within three to five years) may or may not be a good fit for you, but regardless, you’ll get a rigorous budget review. This may help you find more money to put toward balances every month. If you opt for the debt management plan, you may or may not have any damage to your credit score. It depends on how each individual creditor reports your account while in a plan.

You could also try to settle your debts for less than the full balance owed, but that would require a lump-sum payment and would definitely damage your credit. If you want to try to settle your debts, I suggest you contact your creditors directly and not use a debt settlement company.

Balance transfers, credit counseling and debt settlement each has its own consequence. No matter what you do, you need to stop adding to your debts if you ever hope to get your balances under control.

Good luck!

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