Using Credit Counseling: An Email to Karen Jones

by Carrie

(editor's note: Karen Jones often writes on budgeting issues for us. She thought that this note to her would be of interest to our readers.)

Hi Karen,
I read with interest your response to Denise's desire to pay off her credit cards in '98. I was also dismayed in her response to your suggestions that she had contacted her credit card companies to see if they would change the interest, to work with her, and they would not. This is exactly the impasse I found myself in 2 years ago. There is one way to do this, and it's free.

Most Credit Unions have credit counseling depts., and as well, there is the non-profit Consumer Credit Counseling Service (CCCS) who will write your credit card companies and work out a "payment plan" which will allow you to pay off the credit cards without further interest accruing.

There are some things to consider. First, you must 'give up' using these cards. The user doesn't have to surrender them, but for the payoff period, they are not allowed to make any more charges. Second, your credit bureau listing will show that you are using CCCS to make payments. To some future creditors, this is seen as a negative. I wrote the credit bureaus, requesting that they send my explanation letter out with any request for a credit rating, saying that I was using CCCS in order to avoid bankruptcy, and to honorably pay off my debts. This may always be seen as a negative, because it has been pointed out to me that future creditors may not want to take the risk that you will get yourself to a point again, of stopping interest accrual on their accounts.

However, I needed to stop the interest accrual, as without that occurring, it would have taken 8 years for me to pay off my debts. If interest payments were stopped, I could pay off my debts in 3-1/2 years. Since this was a significant savings in interest, it was worth it to me, to be able to get out of debt. I should add that I got into this horrible mess because I made a decision to bankroll a business I was starting by using cash advances on my credit cards. When the credit card companies kept increasing the interest rate on these accounts, I realized that I was never going to be able to pay off the credit card "loans".

Using CCCS

What happens is that after CCCS has contacted all the credit card companies involved, or in the case of avoiding bankruptcy, ALL creditors, a payment plan is worked out, whereby interest accrual stops, in some cases the monthly payment amount might increase as a way of the creditor getting a higher payment per month, but the consumer doesn't write individual checks any more. They send one payment to CCCS, and CCCS disburses the funds on a certain day of the month.

One additional thought. Save out the card with the lowest interest charge per month with, hopefully, the lowest balance. This leaves the consumer with one (1!) credit card to use. If you need to make airline reservations, or rent a car, you need one credit card you can use. For this situation, and you have to make up your mind, this one situation alone, you save out one credit card. All the rest you throw into the Credit Counseling Payoff Pot (my nickname for the counseling service).

I didn't have to, but I cut up all the cards, except for that one. I know I can't use them anyway. But, it's the principal of the thing: They are not available to me to use, ever again.

It was enlightening to become part of the "cash only" segment of this population. Having to pay in cash, or write a check for every purchase, has made me very aware of where every penny I spend goes, and as a result, has even made me a better shopper. If you have ever had credit card companies calling weekly, to find out when the next payment is going to be mailed, you can relate to my desire to never experience such a desperate situation, ever again.

And finally, what disheartens me is that the credit card companies would not work with me, on an individual basis. Not one of them would lower the monthly payment, or return to a previous interest rate, despite a history of good payments, and even a zero balance, every now and then. Not one of them would work out a monthly payment plan. In effect, I was forced to go to a counseling service. Thank goodness there are a number of options for which there is absolutely no charge. Please warn your readers about the "restore your credit rating" ads, as most of those will cost money, will not restore credit, and do not do for you what the Consumer Credit Counseling Service does, for free.

I apologize for having a lot of thoughts on this. . . But, I was so struck by Denise's statement that she had contacted her credit card companies, and that they wouldn't work with her. What I've written may not be something she wants to consider, because of the credit bureau notation about using the CCCS. I wonder in the future if they will view me the same as if I had declared bankruptcy. But, unless I plan to buy a car or a house, it is not an issue, because except for my one credit card for emergencies, I will never use credit cards again.

-- Carrie

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