OT: Credit Counseling and Credit Reports
 

Need advice so I don't make a bad recomdation to a family member deep in consumer debt.

1) When a credit counseling service helps negotiate with credit card companies to lower the interest rate, does this reflect bad on the borrower's credit report?

2) Is Consumer Credit Counseling, the non-profit org, legit? They seem to address all areas of the person's financial health and habits, not just the debt. Does anyone have any experiece with them?

3) The family "elected" me to do an "intervention," and I don't want to make matters worse. Has anyone successfully helped another out of financial desaster? Is this like drugs or drinking -- the person has to want to change themselves, by hitting bottom first? I'm scared by the possible emotional fallout this could cause the family, but we can't just stand by and watch this family member flounder. Any suggestions?

Credit Counseling
 

Yes. In order to negotiate, there should be deliquency, as otherwise, the creditors have no reason to negotiate.

There are usually two organizations. The "non-profit"...which will direct you to "a sponsoring company" that makes a profit.

The Consumer Credit Counseling organization has been one of the best. They are a not for profit company that is paid by the creditors. What happens is they send the creditor a check less their fee but the creditor applies the full amount toward the debt. You are correct in that they do credit counseling not just negotiated settlements. Years ago when I was at a finance co they were the only one we recognized and gave break to the consumer with. One of the recent big companies Ameridebt has some class action suits pending in some states and are a for profit company. I would stick to CCCS if you have a local office.

As a creditor if I see someone has gone through CCCS and has not gotten back into trouble after I feel a lot better than someone who just up and went BK. As for negative credit reporting, that depends on how the creditor reports it. It can state "Credit Counseling" on the report to let other lenders who inquire know there might be a problem even though the debt show current. Sometimes they just accept the payments but still reflect the account as past due if it is. Many credit card companies will reset up you account if it was past due but if you have made consistent payments and start reporting you as current.

As for the intervention. Many people go down that road and usually you have to want to quit what ever it is, drugs, gambling, shopping addiction or what ever to turn it around. This person must be committed to change spending habits or it's all for not. Plus it didn't take them a week or a year to get into this mess and so many times they don't want to take 2-7 years or more to get their debts paid. There is no quick fix usually and most don't have the dedication. Not to say people cant' change but it is tough. We would see people in CCCS for 6-12 mo then drop out because they got tired of eating at home and only going to a movie once every 6 months and not being able to keep up with the Jones'.

Like I said, it's hard to break the cycle.

The big problem with these companies is that if you don't have the money to pay your bills, they won't either. They will not kick in their own money to keep you caught up. As far as reducing the rate, that is a case by case basis, they may drop from 21% to 18% but that is not anything that will reduce payments. I have seen where these guys actually hurt your credit, again as stated above they can only pay as much as you can. If you are in CC we will not give you a Mortgage for that reason....the slow pays continue. I feel you can do this on your own with help from a family member, or here at Wells Fargo we will put you in touch with a class that will improve your credit with our help. It is free. My theory is that if they take any kind of fee to do this, that is that much less you can use to pay your bills. Although they are non profit they still need to cover admn expences. Just don't let them go Ch 13 or 7. It will follow you for a lifetime.

Cut up ALL thier credit cards.

and there in lies a major part of the problem. CC companies are like heroin dealers to the debt addicts. Theres always another one ready to send them a new card which they can max out and sink deeper into the hole. I watched a college friend end up 6 figures in debt plus interest (the big ) because CC companies charge like loan sharks and they were literally lining up to give him more cards and more credit. Its unbelievable but they seem to operate like mini versions of the IMF. Lend like crazy to those who cannot afford to pay the balance, charge like hell for interest and extend further credit when the card holder maxes out their limit. It got to the point where he was getting a new card and using it to make minimum payments on 10 other cards. Friggin ridiculous.