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No. of Recommendations: 4
Dear Maraith: Do NOT get yourself emotionally involved with the outcome of your efforts. Keep this process 'at a distance' so that you don't stress over it.

Debt relief vs 'counseling' vs ?other? vs debt consolidation

I've a friend who's been through - 80 to 90% of the Dave Ramsey course -about 10-12 years ago. My friend and his wife (both devoutly religious) had gone through a debt consolidation process about 5 years before his doing the Ramsey course. The Ramsey course was offered at a 'discount?' through his church. Today, my friend can use the 'terminology', but when questioned cannot really explain the concepts. 10 years ago, just after he took the course, he WAS able to explain them, more or less clearly.

Today, my friend has atrocious credit card (CC) debt. >than 20k.

About 4 months ago, he tried a debt consolidation (DC) company, apparently composed of lawyers, who took over all but 2 of his CCs. He had... 8 or so. The DC company stopped payment on all his CC accounts. The 2** cards that my friend 'kept' for his use - he'd been paying off each month - i.e. no balance carried over from month to month.

The DC company advised him that the process would be 'rough', that he would have to resist the CC and collection agency tactics, that he would have to refer any contact from the CC's to the DC lawyer contact at the DC company. etc. AND, he would pay about 25% of the balance to the DC company. The total paid would be about the same as if he'd just paid the total balance on the CC's. (i.e. if his 'balance' on all the CCs was $25,000*, then at the end of 4 years, his total payment through the DC company would be about $25,000 [19k to pay off the CC, 6K fee to the DC company]). To me, this meant that he'd save the amount that he would have paid in interest.

After a couple months, my friend began to receive notices about 'no payment received', 'payment due'. At which point he finally understood that the DC lawyer/company was NOT making payments, and was basically going to hold the CC's hostage, to force a settlement.

My friend was upset, and claimed that his credit (FICO in the 450-520s?) was taking a hit - AND, he 'wanted' to pay the CC's, since it was his debt.

He contacted the CCs - one of which put him in contact with a CC-approved debt company. THIS company sounds like it might be a debt relief company? My friend talked to them, and called the DC company and cancelled his arrangement with them (at no cost?).

This new debt counselling company (I'm gonna call em ND - for 'new debt consolidation/relief') took over the accounts on the same 6 or so CCs, and has 'up front' negotiated lower interest rates. This ND company's plan will pay off the card balances in about 5 years, which includes 'interest' paid to the CCs... The total, after 5 years, will be $1.5k or $2k more than the current balance on all 6 cards.

The total monthly payment for the DC company and for the ND company stayed about the same.

AS I UNDERSTAND IT... he is still paying interest - although at a lower rate, perhaps 8 to 10%? APR rather than 25% APR - the CC's are still getting some 'interest'. The CC approved debt consolidation group is charging my friend about $5 or $6k of his current balance, to perform this interest-rate-reduction service for him. They will clear these debts in about 5 years.

He brags that his FICO (kredit karma) improved to 520 about a month ago - and is now 'poor'.

The CC company is NOT your friend (the employees are 'friendly' but, they aint your friend!
Their pay and their bonus comes from the CC company, not from you!)
The Bank is NOT your friend (the employees are 'friendly' but...)
Insurance companies are NOT your friend (the employees are 'friendly but...)
Now, I add 'CC approved debt counselling/consolidation/relief companies are NOT your friend (the employees are 'friendly' but... )

watching from afar

* $25,000 is not the actual balance. It is merely a number used for illustration.

** after getting the DC (the first debt consolidation) arrangement, my friend made some statements like 'That's all taken care of - now I don't have to worry about conserving money... '. which made me think that he was just going to continue spending ABOVE his means. Sadly, I was correct. After 6 months, he has maxed both CCs that he 'kept' for his use, as well as f'd himself with signature loans (two types?) at his bank.

*** how did I get involved? Like the OP, my friend approached me for advice. (which he really is NOT taking). First, he asked if I'd loan him the money to pay off ALL his CCs and bank loans at, say, 6 or 7%... I asked "Why would I do that?" he said 'cause you can afford it'. ... ok. ... I said 'no'. Now, I'm 'watching the train wreck from afar'. It hasn't stopped yet.
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