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My husband and I have recently gotten pretty serious about getting out of debt.We sold my car, we cook cheaper foods mostly at home, we cut cable, and I got a raise at work. But even with all that, we’re still living paycheck to paycheck — and the reason is mountains of credit card debt.
We’ve recently been paying more attention to those radio commercials that promise to “forgive your credit card debt!” We’re skeptical, but desperate.
Has anyone ever had any luck with those companies? Do they actually do what their over-enthusiastic radio ads say? Will I have to sell my first-born child?
I’d love some first-hand accounts of anyone who’d tried a debt-reduction program and had it work for them, or things to look for so we don’t get into more trouble than we’re already in. -Evee
I don’t know if these programs do what they say they do, but if it turns out they’re a lot of hype I can tell you what I did to get out of credit card debt (a few of my friends as well). I took the debt I owed on a one credit card (which was several thousand dollars) and transferred the balance on to two other new credit cards (it took two to cover the total balance I had). The new cards had zero % interest for the first year so I was able to make the minimum payments (or send more if I had the money) during that time without any added fees. I just kept transferring this way to avoid the interest and I was able to pay all the credit card debt off in a couple of years. I hope this is an option to you and that you are able to get out of debt soon,whatever method you use! Good luck!
This is a good suggestion. When you do a balance transfer like this though, if you do end up defaulting on your loan eventually, the settlement options available are usually a much higher percentage of the whole debt.
This is exactly what my husband and I are doing. So far – so good….
I had this suggested to me before too, but the problem I had with it was that our credit had gotten so low (with being behind on so many payments all the time) that we weren’t qualified for new credit cards–at least, certainly not the ones with nice benefits like 0% interest for the first year.
We did a debt consolidation program but it was through a local, accredited agency with a good history and word of mouth. They had counseling sessions and helped us get out of debt in 3 years–I just made my final payment! I know for sure if I hadn’t done this I’d still be paying on these accounts for years to come. The benefit of this, for me, was twofold. 1. They were able to get the interest rates significantly lowered, in some cases to 0% so that I was only paying off the actual debt (this does negatively affect your credit, but it is temporary; with your debt paid off your credit shoots up). 2. All of my credit cards were consolidated into one easy payment, I sent it right in to them automatically and they paid the accounts with the highest interest first and distributed everything else in the best way possible so it would all be paid off as soon as it could be. So I only had one payment a month instead of 6 or 7 to keep track of. That in itself was a huge benefit, and I wasn’t ever late or had a missed payment again.
So from my experience I would look for local counseling agencies that will work with you to reduce debt and improve your credit, with a good history of business (check the better business bureau?) instead of an 800-number somewhere that promises the world. Good luck!
This method can work, but do keep in mind that opening new credit cards regularly, and not having any long-term credit cards can hurt your credit score, which, sadly, always matters in the long run (and even getting the approval for these deals to begin with). So I recommend using this idea judiciously.
If they are a for-profit company, I don’t trust them. At all. However, if you can find a non-profit Consumer Credit Counseling Service in your area they are the way to go. In fact, my husband and I are approaching the end of our Debt Management Plan.
Buckle up kids, Wall O’ Text approaching.
We were in big credit card debt and were working on it ourselves. Then I lost my job. Things got so bad we went to a bankruptcy consult; we ended up deciding we didn’t want the courts all up in our business to that degree for that long. So we went to a consultation with Consumer Credit Counseling Services of Oklahoma.
We took copies of our credit card statements, mortgage payment, monthly bills, etc. The counselor worked out a budget for us based on Hubs’ salary and my unemployment. It was tight, but doable. We also agreed that we wouldn’t take out new credit while on the plan unless we had a really good reason and got permission/notified them. There were one or two debts they said we would be better of handling on our own: a Dell account and a private loan being repaid to a relative.
A DMP does hit your credit. Though it is said that it isn’t as bad as bankruptcy. We have used new credit twice: once when we had to get a new car when an old one got totaled and once this year to buy a new central heat/air unit. Our DMP payment stayed the same, we have elected to increase it as allowed: when we paid off the IRS we rolled that payment into the DMP, when Hubs’ salary increased we upped the payment, and now that we are so close to the end we’ve upped it again to get done faster.
We started our DMP in October 2010 and we will be totally done by March 2015. Four to five years is average. I don’t regret it at all even though I will need to rebuild my credit once we are done. It has been an amazing thing for us and I’ve encouraged many people to go talk to CCCS. If anyone has more questions let me know and I’ll try to answer them.
My husband works at a not for profit doing DMPs for people as a credit counsellor. The consultation with a counsellor through one of these agencies is free and they will help you to make choices about what to do. They have seen it all, so there is no need to feel judgement or embarrassed by going in. Debt problems happen to everyone!
The thing you need to know is what they are doing for you and how they are using the money to pay your debts. What they should be doing is negotiating a monthly payment with your creditors that is paying toward a reduced total debt with that creditor. They negotiate with all of them and then will do their best to get a monthly payment that starts right away to the creditors and begins paying down the debt. Most not for profits take a percentage for their services to cover their costs. You will then pay the agency monthly and they distribute right away to creditors. Once the creditors accept a debt management plan they deal only with the Credit counsellor and leave you alone.
Shady services that are for profit tell you to stop making payments to creditors and get further behind
Despite the fact that you are paying them monthly. They also take a significant amount of what you are paying them for their own profit. The creditors still come after you because you aren’t actually paying them anything for a long time.
I guess the point is that non profit credit counselling is a great service and it is free to find out if they can help so just do it!
Consumer Credit Counseling Service is now called Apprisen in most areas. Apprisen is a non-profit agency. I have heard that they’re really good about letting you know whether or not a DMP is a good idea in your specific situation, as this commenter suggests.
I used one when my ex left me with $22000 of credit card, car loan and unpaid bills.
I’m in Canada and I went and talked to my bank. They recommended I do a Debt Management Program (DMP), it would lower my monthly payments and have creditors off my back. I signed up for a 5 year DMP and as i worked extra hours or got raises I applied the money to it. I went from $255/month to $880/month and paid it off on about half the time.
They are helpful but up here in Canada it wipes off your credit, you start back at zero, just like when you had no credit. It s work looking into and watch for what they charge you! Some are outrageous!
I used to work for a place like that. This is an option only if you don’t want a credit rating for 7+ years. First you start paying into the program. At this point you will not be allowed to answer your phone for 3+ years.
Essentially what the company is doing is letting all of your debt go delinquent while you save half your debt+ fees worth of payments. By the time it’s time to settle your debt your credit rating is trashed.
However they tend to be able to pay off your debt at about 50% or less. The Debt is settled and you don’t have a bankruptcy on your credit. However like I said your credit rating is trashed.
It does work for some people, typically the best people for this are those who have started falling behind on payments. Also I worked for one of these companies that the FTC Investigated, as they are doing to all of them in turn. What these companies do _is_ legal. that does not mean it is ethical.
Personally, the way I have done this is to be really really frugal. I picked a credit card that had the least debt on it and put extra (most times just $20) on it every single month. When I got that paid I turned to the next one and put the payment I would have put on my paid off credit card and the extra $20 as a monthly extra payment on the next credit card, I even took a large hunk of my Income Tax return and put it on my credit cards. You can see how this snowballs can’t you?
It took me a few years of being really frugal and disciplined but that last card got paid off really fast. Then I made some hard rules about using credit cards, canceled most of them and have been pretty happy since.
There is no easy fix, but with discipline you can dig out of this. Look online, I’m sure there are other ways to do it that financial experts can tell you about.
And as always, this was how _I_ did it. Your mileage may vary and you may find a system that works better for y’all. I just thought I’d put the info out there on those debt settlement companies so you don’t get snowed into that.
And yes they pretty much all work the same, since the FTC is going through all of them and making sure they aren’t laundering money for drugs or something. They have determined a legal way to do this, like I said it doesn’t mean they are ethical with their clients, just not breaking any laws.
I had around $8000 in credit card debt. I went with a debt consolidation program called Novadebt (I don’t know how I found them). They negotiated lower interest rates on my cards and I made one payment a month to them, which they paid to my credit card companies. I was not allowed to take out more credit cards. After three years of ~$150 a month I am debt free (aside from student loans). They take something like $10 a month from your monthly payment.
I was very happy with their service and they saved me a lot of money. Before they helped manage my interest rate I was paying nearly $300 a month and still being charged interest – it was a nightmare.
How much did they charge you for this service?
It was somewhere between $10-15 a month, which was wrapped up in the ~$150 I paid each month.
I also want to note that 4 months after paying the last bill I bought a house. My credit was very good, I was able to get a bank loan towards the house.
So far as I remember Novadebt negotiated a lower interest rate up front and then facilitated the payments. It was not shifty at all.
Woo-hoo and they’re based in NJ. My fiance and I don’t have a ton of debt (about $10,000 or so all together) but we need a way to pay it all off while maintaining (or hopefully improving) our credit and not breaking the bank.
The goal is to get a house within 3 years, but there’s no way to do that as things stand. This company could be a game changer if it works out.
I don’t have experience with a DMP but we have been looking at ways to improve our financial situation after a brutal 5 years (partner is suddenly disabled and medically retired in our 30’s, 2 job losses for me and 3 babies – one of which who died). Our biggest problem is living paycheque to paycheque and relying on credit for unexpected expenses.
I recommend reading over the success stories at http://www.youneedabudget.com – we’ve just started using it to try and dig out an so far it’s good. Maybe it’ll help?
(Note: I’m just recommending something I think is awesome, I’m not compensated to do so.)
Wow, that is a lot to process. Best of luck to you and your family.
Thanks Kim. I hope we’re on the up and up. It’s been a long 5 years.
I’ll second YNAB. It is awesome and has really helped us get a handle on our money. And is the main reason we will be able to pay off our DMP early.
I do recommend watching the videos to better understand it. Plus they give away a free copy at the end of the live videos. You can also occasionally catch YNAB on sale on Steam; sometimes as low as $15 during their big sale.
I’ve never used one, but I’ve heard many stories of people getting swindled by such programs. As a commenter mentioned above, the way they work is that you pay money to them and they do NOT pay your creditors right away. This is because they want to try to negotiate lower payoffs and no creditor is going to negotiate a lower payoff if you are paying on time. So, while you are paying money to them, you are defaulting on all your loans.
That’s not to say it hasn’t worked for some people, but the thing is, you can try to negotiate lower payoffs yourself.
Personally, I am a big fan of Dave Ramsey. His (free) podcast has completely changed the way I view money and debt and he’s got a very no-nonsense plan to get people out of debt that isn’t snake oil. Real people who have paid off significant debt call into his show all the time with their success stories (and/or their horror stories about dealing with DMP companies). Youneedabudget.com (mentioned in the comment above) is based on his plan.
Anyway, I’m also not paid to endorse him. I’m just a fan (fair warning, though, his religious and political leanings are very conservative, so I’ve had to learn to selectively listen).
I just want to second Dave Ramsey’s books, which I read from the library. His books have completely changed how my husband and I handle and talk about money. After 3 years of following his snowball debt plan, we are now completely out of debt, as of June – yay! The books actually helped put us on the same page for dealing with money, and gave us a starting point, since we really didn’t even know what to do first and we felt overwhelmed. During the time we were paying off debt (starting out with about $44,000), my husband was unemployed for a year of it, we moved halfway across the country, and there were several thousand dollars worth of unexpected medical expenses that popped up. I don’t know how we would have handled all that, if we hadn’t had a plan and been working as a team with our money.
Btw, I agree about the religious leanings and conservative views in his books, which my husband and I chose to overlook since they didn’t align with our beliefs. I’m also not paid to endorse him, but just wanted to share. 😉
I’ll chime in with another “dave ramsey’s plan is awesome if you can ignore the religious and political bs” – and I’m a Christian minister.
I’ve taught his “financial peace university” course multiple times over the last 7 years. (It used to be a 13 week course, and now it down to just 9). I’ve always found it very motivating to teach those courses because it keeps my enthusiasm up for paying off debt. (That class does include his Christian believes, but thankfully there are no political rants…)
I’ve found mvelopes.com to be my key to sticking to the budget and finding spare pennies to throw at debt.
My parents did the Financial Peace University thing and it worked really well for them.
My husband and I tried to do the online only course and HATED it. Without an actual teacher in front of you and other folks to bounce ideas off of there is only unfiltered Dave Ramsey (plus, it was the older videos- I believe he just release new ones so some of them were out of date). I couldn’t find enough useful to our situation and get our questions answered and just had a really really hard time getting over all the religious and political BS.
It’s a shame, because I think it could have been really helpful, but there wasn’t enough info about student loans and too much info about marriage.
Again, my parents had a *great* experience with it though, and I’m pretty sure if I had done an in person class it would have gone better.
(Note: I’m not from the US, I’m from The Netherlands, Europe)
I don’t know anything about those programs you mention but if they are anything like the programs mentioned in the comments about, ergo you paying them and then basically defaulting on your loans, well, to be honest it sounds like a bitch move to me. Creditors should not bear the brunt of your problems, especially the smaller companies.
The fact of the matter is: paying off your depts is not easy and won’t take place overnight. It will take some time and determination. Try zero-based budgeting, Excel the shit out of your financial data etc. etc. A good overview of your costs is key. You may think you know how much you spend and what you spend it on, but honestly you just don’t know unless you write it down.
Write down what you spend on car payements, car taxes, student loans, rent/mortgage, insurances, vet bills, cable, phonebills, internetbills, petfood etc. Do you have Netflix/Starz/Amazon Prime? A couple of dollars here and there don’t feel like much, but it sure adds up! Stop buying magazines, coffee, breakfast and lunch and you’ll save loads.
After your overview is complete, start cutting. Maybe you can get a better interest rate on a different card. Do you really need such an explensive phone plan? Do you really need those insurances? It is important to cut with care though, you shouldn’t save some money only to rack up expenses because you cancelled an important insurance.
And look up information on the web, maybe join a forum. Reading other people’s success stories can help a lot. Good luck!
I’m in New Zealand, so (again) no experience with these programmes, but I totally second Kim.
Excel, excel, excel.
Multiple pages.
Keep every single receipt and enter it in (even cash spending).
Split out your grocery bill into segments (fruit & vege, meat, cans, dairy, basics, treats, junkfood are some of the segments we use). You might be surprised at what segments you actually spend a lot of money in that you could save.
Look for budget eating websites. Sometimes what you think is budget eating is not. How are your portion sizes? What are you doing with leftovers? How much food are you wasting? Are you only buying expensive cuts of meat / out of season veges? Are you cooking to a menu plan, so therefore only buying the food you need for this week? Are there any ‘fancy’ things you can give up, like bottled water or organics?
Take a month or two to really look at all your spending. See where the money is going and if you can make any savings yourself. Research if you can change utility companies to save money. Get rid of pay TV, reduce your internet allowance, change mobile plans (especially if you aren’t using all the calls / data included). Talk to whoever holds your debt about if you can negotiate a payment plan. Look at changing your credit card to a zero interest one (make sure you read the fine print though – here, most of those require you to charge a minimum amount every month or so on to the card).
Then go see a budget advisor. With all your data.
They will probably have even more ways to save money.
One site that I like reading about this issue and budgeting has been http://andthenwesaved.com there are a variety of solutions that are covered but the site owner was able to knock down debt with a huge cut in spending.
I have not had to go through this experience, but my gut would tell me to go with a nonprofit if assistance was needed and you couldn’t do it on spending cutting or negotiations on your own.
These places basically negotiate settlements on behalf of you. Here’s what a credit card company is thinking – they’re thinking that if they refuse to negotiate with you, you’re going to declare bankruptcy. And credit card debt is unsecured (meaning there is no collateral) and fully dischargable in bankruptcy. That means that if you DO go into bankruptcy, the credit card company will likely sustain a heavy loss because most of your debt will be wiped out. They hate that idea. So when these Debt Management firms approach them on your behalf, they are amenable to accepting less than the full balance from you because its more than they’d get from you through the Bankruptcy court.
This sounds fairly innocous. However, if you do choose to go this route, please, please pay attention to the FEES these places charge. Some of them can get quite onerous. The big red flag, to me, is always up-front fees. Those ping my radar. Any agency you go through should also be certified by the National Foundation for Credit Counseling, which sets ethical standards and practices for debt-negotiation agencies.
Also, please get anyone to make it very clear what the agency can actually DO for you. Some agencies can help you negotiate payment plans to reduce your payments, but you still need to pay off the balance. Some of them can get interest and late fees waived, but you are still responsible for your principal balance. You need to get a very clear picture of what these agencies can actually do for you. Also, get a written contract – never rely on verbal assurances. Also, before you commit to anyone, check them on the Better Business Bureau website.
Paying a company to not pay your bills for you is pretty easy to tell as a waste, since you could just not pay them on your own, handle all the phone abuse you’ll get either way, and try to settle them yourself IN WRITING. And paying to consolidate debt isn’t usually as helpful as it sounds since the interest rate the the “new” debt would have to be as low or lower than the lowest interest rate of the old debts.
But neither of those methods correct the habits formed that built up all the debt in the first place. It’s the same as crash diets versus a balanced lifestyle of sleep, activity, and good food. You’re on a fiscal diet and small, solid steps to paying down debt, keeping income up, and limiting expenses will be the key to reach your goals.
I’ve had the most experience with using lawyers to help negotiate debt, versus a typical debt counseling agency. Attorneys (in the US anyway) can make all those debt collector calls stop. There’s a ton of consumer protections that your lawyers can key you in to also.
If you’re a student, see if your university offers free attorney consultations – mine did. Otherwise, look for local law schools or other free clinics in your area to see if they can help. If it is a lot of debt, and you have some income, you could look into paying an attorney. Often debt collection/avoidance cases don’t cost that much, since the rules are typically very simple.
Also a plug for my favorite budgeting website http://www.MrMoneyMustache.com
I work for a bankruptcy trustee here in Canada and I would have to say that sometimes bankruptcy and consumer proposals are a good idea – like if you owe several hundreds of thousands or more (and that doesn’t include your mortgage) you could drown in the interest alone. Conversely if you owe less than that it is often easier, and more healthy for your credit score, to pay it off yourself. The thing with bankruptcy/consumer proposals that many people don’t seem to realize is that you still have to pay some of it back, and it very badly damages your credit for a long time, even after both you and your trustee are discharged. I would recommend just talking to your creditors and working with them rather than avoiding them. I once owed about as much as I made in a year, which wasn’t much, and of course all of the creditors wanted me to pay more per month than I was bringing in. I was just very firm with all of them, explained the situation and worked out a deal. Most of them cut my interest for me (after a few calls and some serious negotiation!) and they all cut down what they were asking. Student loans in particular wanted at least $300/month and I talked them down to $100/month and after 6 months of regular payments was able to talk them into taking me out of their “collections” department and back into their regular payments department so that helped my credit score even more. Another great tip I like to share is that if you have multiple debts and you pay one off, take that payment and spread it to your other debts to get out even faster. So if you are willing to put in the leg work of calling all of your creditors and hammering out a deal, it’s much cheaper in the long run. Be careful with the non-profit credit counselors, some of them are really good and helpful – but others will take a fee (any where from a couple hundred to a couple thousand) from you and then just refer you to a trustee and that money you gave them does not go to the trustee to pay off your debts, they keep it. So do your research and be sure you know exactly where your money is going in these cases – and best of luck! It sounds like you are already on the right track.
Hey all! I’m the person who asked the original question. It’s really good to hear everyone’s stories and advice with regards to getting rid of debt! Just to clarify, we’ve already done a lot of work on our end to change the bad habits that got us into credit card debt in the first place. We’ve also cut as much of our spending as we really can, and we’re still struggling to pay everything on time. We’re not looking for an easy way out of debt, just a solid plan to be able to pay it off without worrying that a rouge car repair or medical bill will set us right back again. Hence the question about the debt reduction programs. It’s really helpful to see everyone’s experiences and advice so we can figure out what will work best for us. Cheers all!
My personal thought as I got out of $66,000 worth of debt is I owe it. No repackaging would fix what I owed companies. We went thru the Dave Ramsey program and it totally saved us. There’s no ticks or short cuts, but his plan will help show you what priorities to make each month.
Some people will say to pay off the debt with the highest interest rate first but I personally believe in paying off the smallest debt first and working your way up. Having small victories helps so much, we had a list and it was great to be able to keep crossing off paid off debts.
Like I said there’s no ticks to what he teaches but he lays it out in a manageable way that makes sense. There’s an end I’m sight for you, if your like me it seems so far off but you can make it. It took us 30 months to pay everything but out house off and it was worth all the struggle and all the times we had to say “no”. Good luck!
Germans don’t do credit card (as much), but most people use their default bank credit with incredibly high interest! One easy way to get rid of debt with high interest is to take a low-interest bank loan, pay off the high-interest debt at once and then pay back the low-interest bank loan.
I personally did not use a DMP to pay off my cards (I had about 8 when I started my pay down. Because in the early 2000’s it made sense to give an 18 year old with a part time job $10k in credit) – my circumstances were just never quite right for using one.
I did negotiate with most of my cards myself, and settled them with what they call a “hardship plan” where they close out the card and reduce your interest rate to *usually* less than 5% and give you a reduced payment plan. Since it’s not a default, it does not affect your credit at all and can make your monthly payments easier to manage. I usually pay the full amount I was paying before so I can pay them down sooner, but it did give me quite a bit of wiggle room for emergencies. You can call the service line on most cards and just ask for their hardship department. They ask what your situation is, and they don’t usually poke too hard at what ever you tell them (I’ve told just told them that my total debt is too large and I’m in danger of falling behind, no details necessary), and they usually determine whether a temporary or permanent payoff solution is best. I went with permanent, since I want the debt gone for good. Just be aware it does close the card, and you will most likely not be able to take a new one out with the company until after your payoff is complete.
The other thing I would suggest is to set up an automatic withdrawal to a savings account for emergencies like car repairs. I use Simple as my main bank account, and it lets you set up as many savings goals as you like with automatic deposits into them. Also, they don’t charge fees, even for overdrafts. You’d be surprised how quickly $10 or $20 a paycheck adds up.
I’m about halfway done now, and somehow still managing to float even with the hubby being out of work for the better part of a year now. Good luck, and let us know how you do!!!
Oh man I wish I’d known that this kind of thing was an option when I was a 19-year-old about to default on the credit card I’d opened as an unemployed 18-year-old college student.
I ended up defaulting on it, and by now it’s dropped off my credit entirely. I still occasionally get mean letters or phone calls from skeezy collection agencies though, who’re trying to get me to pay THEM for a 9-year-old debt, but I know better than to respond to their ilk.
I highly recommend Family Credit Management (familycredit.org) – they’re a non-profit and do the same thing as a few others mentioned here. They negotiate your interest rates down (mine went from 16-24% down to 1.0-6.9%), you pay them an agreed upon monthly fee based on your income and debt, and they pay the cards for you. If you have some extra money to throw at the balance from time to time, you send it to them (by mail or even by text autodraft!) and tell them what card to put it towards. I had over $30k in credit card debt, paid $605 per month to them for about 3 years and am now debt-free. It’s amazing and such a relief – financially and emotionally. I never would have done it on my own at that pace. The only stipulation was I couldn’t use my existing cards or get a new card anytime within that 3 year period – which I was fine with, as I didn’t want any more debt anyway, and the $605 monthly payment was way less than I had been paying towards my cards so I was able to keep more money in my bank account month to month, and didn’t need cards. About a year after the debt was paid off, I opened a new card and only use it for gas and groceries (an AmEx with 6% cash back on groceries & gas), and pay it off every month to keep my credit rating good (it’s currently 802).
Again, not an American here, so this whole Credit Card Debt is a bit of a strange concept for me. My Grandpa taught me the most important lesson in my life: Never spend more than you have. I found that nowadays, this simple concept is something that is often just not observed. But it is something you can teach your kids. I understand that sometimes, there’s just no way around getting into debt.
We’re living on a really tight budget, too. I agree what has already been mentioned further above: Excel the shit out of your finances.
Personally, I use a “Household Book”, because I need to physically write down what I spend. An Excel File is too easily forgotten for me. But this is really just a preference.
I write down every single penny I spend, and even if it’s just a packet of gum. It has already been mentioned above, but do examine your mobile, phone, internet, tv and insurance closely and change the contracts to what you really need.
Learn to cook and cook fresh. Take part in Meal-Exchanges and make your own Freezer menues. Cut out the To-Go Coffee and make it yourself at home. Plan your meals carefully a week ahead and cook smart. Take your own lunch.
I also find that paying cash makes me more considerate of my money. At the beginning of each week I get my allowance from the ATM in cash and use it for the weeks expenses. Psychologically, it hurts more to actually hand over the money, than simply pay with plastic. 🙂
I had $45,000 in credit card debt due to some health issues (and charging medical services on my credit cards following a car accident) and also once my balance was high enough I admit that I just spent some because it felt like I would never be out of debt anyway…
I talked to my EAP at work (Employee Assistance Program) and they recommended MMI (Money Management International) a non-profit. http://www.moneymanagement.org My payments are pretty high, $860 per month, but they people at MMI negotiated the interest rate down on the cards I was repaying. The interest rates went from 5.9% and 9.9% to 1.9%. That made a HUGE difference!
It took me 5 years, but I have one month left of payments, and then I will have repaid my $45,000. Since I got a new home and car loan recently, my credit score has worked its way back up to 700.
I’ve never used one of these services because of all I read about it trashing your credit rating, which to me is not worth in the long run. So my first instinct is to say “no, don’t use them”. I’ve worked my way out of $10s of thousands of debt simply by learning how to budget and by snowballing my way through it all (pay minimums on all debts except one; throw as much extra money as you can at that one every month. once it’s paid off, throw the first debt’s monthly payment towards your second debt to pay off, and so on.) My credit score is inching closer to 800 all the time.
For budgeting, I use You Need a Budget software, which is built on assigning every dollar of income a job (based on your priorities, such as debt elimination) and then helping you track where every dollar actually goes, plus giving you the flexibility to move things around but only within the limits of your actual income. It goes far beyond simple expense tracking, which many budgets do. it helps with actually reaching your goals. I wouldn’t be where I am financially without it right now. Well worth the cost and time to learn it (though it’s not really that complicated).
I used to be a certified credit and housing counselor with the NFCC (National Foundation for Credit Counseling), and worked at a non-profit crecit counseling agency as a housing counselor. Most of what you hear on the radio are for profit companies that will do any manner of things, such as flooding the credit report bureaus with disputes regarding late payments that will temporarily improve your score, but then your score will go back down once the debts are found to be accurate.
The “debt consolidation/settlement companies” which seem to be your main concern are really not worth your time. You give them a monthly payment, a large chunk of which goes to them, while the rest is put away to offer a settlement to your creditors. You could make an arrangment with your creditors on your own, without paying a bunch of money to one of these companies.
I highly recommend speaking to a non-profit credit counseling agency about options in addressing your debt. These companies are sustained through government grants and other partnerships, so going in to talk to someone, or talking to them on the phone is free to you. You can discuss your budget and all your debts with them, and the counselor should be able to give you some ideas on how to address it based on your specific situation. Many of these agencies offer something called Debt Management Plan, where they negotiate a payment with your creditors, you make one payment to the credit counseling agency monthly, and they disburse it to your creditors each month. The difference is, your interest rate while in this plan can be zeroed out or greatly reduced, and all the money except for a very small nominal accountmaintance fee goes to your creditors. The cards you put on this plan are closed, so you can’t use them while on the DMP, and your credit is likely going to take a hit while getting out of debt (as being late on payments, which you may or may not be at this point, or closing cards effects your rating), but the important thing is that you get out of debt, and your credit can be improved in the long run.
Many of these agencies work with people nationwide. To find a reputable agency near, I recommend going to http://www.nfcc.org and searching.
I should add though, that a good counselor will not tell you you HAVE to do a DMP or that its the best option all the time. The main point in talking to these agencies is to learn about your options and what resources are available to you.
It’s not clear to me what you’re doing right now, so I’ll just tell my bit, then you can decide if it’s applicable to you.
When the Mistet’s credit was bad, collections calls were the norm and we didn’t answer and paid erratically. But after raises and getting serious about paying it off, he just talked to the person calling like “Okay I’m going to pay this now, what can you offer?” and if it’s a small amount, you might be able to do one lump payment and then it’s cleared. Or they might say X months at $$X, which is significantly lower than the old payments would have added up to.
It seems like the for profit agencies do the same thing, but with slightly better rates. I’m not sure if the math is really worth it, and I’d be wary of adding another party into the mix. So my suggestion is to talk to the company you owe now and see what they can do
While this isn’t a debt consolidation tip, the advice my father has given me to pay off my credit cards efficiently (because I have enough money to put some extra above my minimum payments onto my credit card) was to do the following. Minimum payments on both: $35. I was paying $50 on each. My dad’s advice was to pay $40 on the credit card with a lower balance and/or interest rate (so interest builds more slowly on this one) and $60 on the higher one. Pay it of faster and then when it was paid off, shift all $100 onto the other credit card until its paid down.
One quick suggestion: use Mint.com or some other budget site.
Free and you can link all your accounts to it. It really helps me see where I need to cut back and the extra I’ll have to throw at my debt each month.
Good luck!