Does Credit Counseling Hurt Your Credit?

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Does Credit Counseling Hurt Your Credit?

Postby micah » Fri Dec 03, 2010 11:57 pm

I am about to signup for a credit counseling service but need to know does credit counseling hurt your credit score or will there be no impact one way or another?

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Postby Mogul of Pineapples » Mon Dec 06, 2010 4:10 pm

What is the definition for "credit counseling" that you are using? Many of the services advertised on the radio and TV call themselves credit counseling but what they are is debt settlement companies, plain and simple.

If it's debt settlement, that almost always involves defaulting on your bills (including credit card payments) while the company collects a lump sum from you each month. After several months the debt settlement company will try and negotiate a lump sum payment with your credit card company. During that time your credit will take a major nose dive because of going months without paying on the accounts. In some circumstances it hurts your credit equal to a bankruptcy.
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Postby Cucumber » Sun Dec 19, 2010 4:47 pm

I am disgusted with all the credit counseling services advertised. IMO they are not being upfront about how their programs work. You might get to settle your debt for half the amount but that might involve them having you go 6 months w/o paying your bills and then your debt went up during that time with default APR and late fees. And don't get me going on how much you get charged by the credit counseling service!! :mad:
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Postby ooxs » Sat Aug 20, 2011 2:16 pm

A favorable option if you still have an income is the banks directly but unfortunately you must be 90 plus late. Unless you have a steady income and can live without credit for a while, this option is almost as bad as bankruptcy.

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Postby JNK » Fri Aug 26, 2011 8:51 pm

Based on my own experiences and the experiences of some friends, attempting to work things out with your card companies and/or banks might prove to be more beneficial.

A few years ago, I got really sick and I ended up being saddled with a huge load of medical bills despite the very excellent medical insurance that I had. As I was self employed at the time and unable to work because of the illness, I knew I wouldn't be able to pay for them all all in one go and so I ended up with the problem of not knowing who, what, and how much to pay first and how to manage the fallout associated with carrying high(er) balances.

Nobody I knew at the time was any wiser about how to deal with such situations and so I turned to the companies who had provided a younger me with credit counseling when opening my first student credit card accounts - my credit card companies.

I spoke with the two companies whose cards I relied on the most and explained the situation to them and I got referred to their credit consulting and debt collections department.

In talking with these reps, I got advice and was given options and for both companies, I decided to work out a payment plan with them where - at the cost of having my accounts temporarily frozen for purchases after I had made all my 'necessary' purchases - I was able to make smaller but set payments over a duration of time and not have to worry about my APR kicking me in the ass for carrying much higher balances than normal.

Yes, I did have to default (temporarily and only once) and the reason for this they told me was that in order to GET help for credit problems, you have to be in bad debt first (kind of ironic considering how I wanted advice BEFORE I defaulted)... but the good news was was that if I completed my payment plan as agreed upon, the default strike on my credit report would be erased and my cards could be fully restored at their original terms.

Neither of the companies went back on their word and the end result was: I was able to better manage my chaotic finances without having to turn to shammy credit counselors who would do goodness-knows-what to my accounts and I was able to KEEP my credit accounts in good standing without destroying my credit score or report.

Yes, I carried a default strike on the account for the duration of the payment plan, BUT it was ONLY for the duration of that payment plan and once the payment plan was finished, the credit counselor congratulated me and reinstated my account back to its previous un-defaulted state.

I guess the moral of the story is this:

You can owe money - sometimes a lot of money - on your credit accounts and not be viewed as the "bad consumer". It can be embarrassing, but the credit companies - especially in these times - can be understanding, too, and can be willing to try and work things out with you. Thing is, you'll never know unless you try and reach out.

They would rather directly work with you if possible than have to deal with some third party, in my honest opinion.

Be honest with whomever you owe money and be the first to admit that you're having troubles keeping up. My credit companies rewarded me for my honesty and were willing to work with me; maybe they will do the same for you.

Best of luck and make sure you research the exact details on the "credit counseling" you plan to do! Credit counseling offered by banks and major credit card holders = good things. Credit counseling on the 'net or on the TV = "Maybe I should look them up and do some homework..."
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Debt Management Programs Affect Credit

Postby nwcdrfinancial » Mon Sep 26, 2011 1:55 pm

A Debt Settlement Program will have a negative effect on your credit while in the program. If your accounts are already delinquent it may not have much effect.

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