Nobody wants to say the "R" word for recession, but my letters certainly suggest people are hurting out there. Here are a couple of samples. For folks like this I suggest credit counseling, but the key is to seek help from a reputable firm. Details below. --Elisabeth Leamy
I am self-employed. I find myself currently in a large amount of debt. My credit is good and I pay all my bills ON TIME. My credit scores went down in the past year due to buying too much with deals at 0 percent. I know I owe a lot of money and I can pay it back, but I am now finding credit card companies charging me up from 19 up to 27 percent.
I call and they tell me that they cannot do anything. What can I do? If this keeps up and other companies do the same to me -- I will be PUSHED into not paying my bills and then I have a bigger problem. It's like they are throwing me to the wolves. Is there a consumer company that I can contact locally or can you give me some advice? -- BL, Marana, Ariz.
I have two credit cards and owe a total of $2,217.21. One month I decided to sign up for online bill pay; it took longer than I thought, so I mailed in my monthly payments. It got there late so I was charged a late fee. The late fee caused me to be over the limit and was charged another fee totaling $78 plus my monthly amount.
I called the next month when I received my statement and asked them to look at my payment history and explained what happened. No luck. The APR went up to 39 percent, and my payment went up. I keep getting o.l. (over-limit) fees. I called again asked what can I do, was told what to do to get caught up, and paid it. And still every time I received a statement, it got higher and higher. They refuse to help. I've asked them to waive and lower the APR, which will help my monthly go down. They wouldn't do it. I can't afford the high APR. What do you suggest I do? Help please. -- MH, Pasadena, Calif.
If you're trying to lose weight, and dieting on your own hasn't done it, you may sign up with a diet counselor. That counselor will give you pep talks, help you develop a menu, even weigh you to measure your progress. If you're trying to shed debt, and doing it on your own hasn't worked, you can go to a credit counselor. That counselor will give you pep talks, help you develop a budget and crunch the numbers to measure your progress. Credit counseling is a lifesaver, as long as the counselor you choose is reputable.
Here's how it works. You meet with a credit counseling service, usually a nonprofit. You and a counselor develop a budget by looking at your income, your expenses and your debt. Once you know how much money you can afford to put toward your debts each month, the counselor calls your creditors and negotiates a workable payment plan. This is something you can certainly do yourself, but credit counseling services have ongoing relationships with various banks and may have better luck.
The counselor will try to get your creditors to waive late fees, lower interest rates or accept smaller monthly payments -- maybe all of the above. Once the payment plan is set, you send a single check to the counseling service, which then forwards the money to your various creditors. You may have to agree not to take on any more debt while you participate in the program. Most credit counseling services also want you to attend educational classes to help you stay out of money trouble in the future.
Now here are the negatives. Some credit counseling services receive funding from credit card companies, so they may have a conflict of interest. Critics say these services aren't likely to tell you if bankruptcy is your best bet, because they don't want to lose their wealthy donors.
Credit card companies hate bankruptcies, because that means the customer gets off scot free. Card companies prefer customers who enroll in credit counseling programs because at least they're paying, even if they pay slowly. Perhaps the best thing to do is get advice from a bankruptcy lawyer and a credit counseling service and see which seems best for you.
You should also know that enrolling in a credit counseling service does not shield you from getting negative entries on your credit report. The counseling service won't report anything to the credit bureaus, but your creditors will. If a creditor agrees to accept a smaller payment from you, it may report the loss. At the very least, your creditors will probably report that you are part of a credit counseling program. Lenders seeing that on your credit report later may consider it a negative that you couldn't manage your money on your own. On the other hand, you'll have better luck getting loans later if your credit report shows a steady stream of payments than if you go it alone and default entirely.
You should know that illegal credit repair firms often mimic genuine credit counseling services to lure customers. Credit repair companies don't emphasize paying down your debt. Instead, they claim they can help you erase negative entries from your credit report -- even if they're true. It's a scam and it's illegal. It's also the subject of the next subchapter!
To Be a Savvy Consumer …
Do your homework.Interview several credit counseling services before making a commitment. Think about it: You're sending these people most of your money each month. You want to make sure they're legit. Two reputable national firms are Consumer Credit Counseling Service 800 251-CCCS (2227) and the National Foundation for Credit Counseling 800-388-2227.
Before you sign anything or start sending money, do a background check. Call the Better Business Bureau and your county and state consumer protection offices to see if there are any complaints against the counseling service.
How to Complain
The Federal Trade Commission accepts complaints about credit counseling services, but doesn't mediate them. For individual help, try your county or state consumer protection office of the Better Business Bureau. Some states have banking and credit divisions that may be able to help you, especially if the credit counseling service is funded by the banking industry.