Question: We have approx $23,000 in credit card debt. Dont’ ask how, we just do. Have a good job, permanent, but we just aren’t getting anywhere with the bills. Paying approx $500/month (all we can afford) and that covers the finance charges plus about $250 I think. So we’ve considered going to a Consumer Credit Counseling Service (MMI) to help out. The rates will be lowered (0% on one card).
I’m worried with what this will do to our credit report. Currently, we are up to date on all bills, although we have had some a few days late this year. By my calculations, at our current rate (paying constant amount on each card), it will take close to 6 years to pay them off. I’m only 25, but that’s a long time!
Answer: I work in the collections department of a major credit card company. If you enroll with CCCS your credit cards will be revoked and will have the same classification on your credit report as if they were closed due to late payments. If you are still in good standing with your accounts this will trash your credit rating, if you are already seriously delinquent (the credit cards are already revoked) CCCS looks better than bankruptcy because it will show that you paid it off, eventually. Assuming your credit is still in good shape a better idea is either a debt consolidation loan, especially if you own your home, or get one more card and do “balance transfers” from one card to another to get the lowest possible intrest rate. Pay off your smallest card first by making minimum payments to the others and all you can afford to the lowest balance, then close it. Repeat with next smallest card. When you go on CCCS a note will be placed on your credit report that says you are in 3CS. This will keep others from giving you credit of any sort. This note comes off when you leave the program. What happens to your credit report depends on the credit issuers. The company I work for statuses the account “revoked” after you leave the program. This is the same status as accounts that are closed by the company for delinquency. This is bad but not as bad as if it were closed for delinquency. If this happens, my suggestion is that after you are out of the program to apply to reopen the accounts and then close them yourself. If you don’t have the delinquencies, the credit report will look ok. Customers tell me that other credit companys either reopen accounts or status them closed after 3S. This may not be entirely true.
Three things to watch out for with 3CS. First, they only drop payments to the creditors once or twice a month. Make sure their payment date works well with your due dates. Have your creditors change your due dates *before* you sign up for 3CS if needed. And pay 3CS early. Second, your creditors need to set up your account for the program and then may need to recertify you periodically or they will “un-setup” your account. Check with your creditors on occasion to make sure it’s done. Third, 3CS won’t catch you up if you get behind. Continue to check your statements and you may need to make a payment on your own on occasion. They relieve you of a lot of of things but not responsibility.
I never had to go this route but it was close. I read every book from the library on debt and money management (starting with “How to get out of debt, stay out, and live prosperously”). I learned how to live without credit, and then worked the balances down.
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