How much can a debt counselor help?

Dear Debt Adviser,
I lost my job in October 2008 and was drawing unemployment benefits until about two months ago. I just let my credit cards go without paying them because I couldn’t. I still have not found enough work to even begin to start paying them. I was wondering about using debt counselors — can they be trusted or are some of them crooked? I don’t want a bankruptcy on my record. My back is against the wall with this debt of about around $12,000 total.
— Tina

Dear Tina,
You did the right thing by holding on to the little bit of income you had coming in after your job loss and not sending any to your unsecured creditors. There is an argument to be made that perhaps you should have communicated with your creditors, but as you clearly had no way of paying, I don’t think you did any lasting harm. Because you still don’t have enough income to make ends meet and make payments, you can only hope that the collectors who own your $12,000 in debt leave you alone until you restore your ability to make payments.

Steve’s quick tips
  • Be proactive with employers.
  • Use credit counseling once re-employed.

Without adequate income to make payments on your debt, a credit or debt counselor will not be able to help solve your problem. The myth is that debt counselors have a magic wand in their desk drawers that they take out from time to time. This wand is supposed to make your debts, or your creditors, disappear. This would be a really nice trick, but it just ain’t so! Reputable credit and debt counselors can be trusted, but without some discretionary income, all they can do is help you make sure your budget is tight and not leaky. Don’t confuse a credit counselor with a debt settler. You can find a list of credit counseling agencies at or I don’t recommend that you use a debt settlement company.

If you haven’t been contacted by a collector or attorney at this point, you may have fallen into a gap in the collection system. This happens rarely, but I have seen it happen once or twice. Records get lost or paperwork is never completed. This is another reason to wait until you have sufficient income for payments before you contact them. The last thing you need is a garnishment on the meager income you are currently earning that may force you to file for bankruptcy protection.

What you really need is full employment so that you can get out of debt and move on with your life. One barrier you may have to overcome is that more employers than ever are pulling credit reports before they make a job offer. If they see a string of late payments (read, broken promises or evidence of irresponsibility), they may not ask you what happened, but just move on to the next candidate. So, I suggest that you develop a brief explanation to give, once an employer has shown an interest in hiring you, explaining why your credit history is so bad, why this won’t be a problem at work and your plan for getting your financial life back in order. You will, of course, only need to share this story with those potential employers that you know will be checking your credit report as part of the hiring process. Employers need permission to check your credit report, but permission is usually included in the fine print on the job application.

My last bit of advice is for when you are re-employed. Experience tells me that debt collectors have a sixth sense that tells them when you find a new job. They can smell income like my cat can smell a mouse! Before they contact you about the debt, this will be the time to visit with a credit counseling agency and/or an attorney to explore your options. Your level of debt usually isn’t enough debt to warrant a bankruptcy; however, after two years of delinquencies, your credit may not get much worse.

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