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I seem to recall a section of this Board that included some basic or standard ways to approach getting out of debt. A friend of mine is in need of help and I thought I'd find the name of a non-scam credit counseling service here but cannot find what I seek.

Any suggestions?
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Maraith,

You wrote, I seem to recall a section of this Board that included some basic or standard ways to approach getting out of debt. A friend of mine is in need of help and I thought I'd find the name of a non-scam credit counseling service here but cannot find what I seek.

Any suggestions?


Sure. You're probably looking for the board's FAQ. Look over there to the right of this message ->

There are some hyperlinks you can click on.

If you don't see the links, you're probably viewing the "Whole Thread". Get out of that view and just view a single message. Once you're on a single message you'll find links on the right-hand border of the message.

If you still can't find the FAQ, click this link: http://boards.fool.com/okay-here-it-is-thanks-for-the-help-w...

Section 7 onward is probably the most applicable.

With that said, debt reduction is mostly about living below your means and using effective strategies to pay off those debts. To that end, you might want to also explore the Living Below Your Means board. Your friend must first get a handle on their expenses and stop the bleeding. If they can't do that, there's little point to more advanced strategies to pay off debt more quickly.

If they have their spending under control your friend should look at a technique called snowballing. There's a link to an Excel calculator as well that shows you the effect of the strategy. Basically it's just about paying off the highest interest rate debt first, then working your way down the ladder.

Once they have the snowballing idea down, they can look at analyzing whether or not it makes sense to refinance or use a low-rate balance transfer to cut down on the cost of their borrowing. Sixteen years ago I actually wrote a post on this board explaining why over the long-run not paying high interest rates can be so important. http://boards.fool.com/why-interest-rates-matter-17699844.as...

- Joel
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I thought I'd find the name of a non-scam credit counseling service here but cannot find what I seek.

Try www.nfcc.org It's the National Foundation for Credit Counseling, and certifies credit counseling services.

In the mean time: Your friend should stop using cards for anything, include automatic payments. Every charge put on the card(s) digs the hole deeper, and they need to start filling the hole in.

AJ
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Thanks so much for the info and the links. The info and the links themselves have been passed along. We'll see if he takes the next steps. I'm a firm believer in knowledge as empowerment so my hopes are high.

Thanks again.
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"Dave" says...

Dave Ramsey seems to stick with a lot of stereotypes that aren't always true, and not always helpful. In this case, what "Dave says" is flat out wrong in many ways. Dave wasn't discussing 'credit counseling' as practiced by the organizations certified by NFCC. He was discussing 'debt relief' services. They are two different things - the problem is many organizations masquerade themselves as 'credit counseling' when they are 'debt relief' and it's up to the consumer to weed through the chaff to find the wheat.

'Credit counseling' when done by NFCC certified organizations:
- examines someone's debt, income and expenses
- helps them budget (looking at debt, income and expenses, including recommending expense cuts) to pay of the debt
- if necessary, will recommend bankruptcy
- can negotiate with creditors for lower payments and/or settlements, but does not 'hold' payments solely for the purpose of negotiating a lower payment
- uses trust accounts for client money held for creditors
- has reasonable (sometimes no) fees, based on the client's ability to pay

'Debt relief' typically does as Dave suggests, and holds client payments (often not in trust funds) to force creditors to write off debt, and then 'negotiates' settlements, all the while, charging outrageous fees.

Dave also seems to stuck in the past on his understanding of credit scoring. It used to be (several credit score models ago) that using a credit counseling agency impacted your score negatively. In the current credit models, it's not a derogatory score reason. If you want to check that, you can go to https://www.reasoncode.org/reasoncode101/ and put in each number, from 0 to 9 and see a list of all of the credit score reasons used by the credit agencies for Vantage scores. And here's the list for FICO scores: http://web.archive.org/web/20140825110049/http://www.fico.co... (Note - even though the FICO score list is dated 2013, it's the most recent one that's been published by FICO. If you want to check that, you can go sign up with FICO here http://www.fico.com/en/latest-thinking/product-sheet/us-fico... but you have to register. (I did)) There is no reason on either of the lists that mentions credit counseling. Credit counseling CAN be noted on your credit report (without affecting your score), so lenders may use the fact that you are on credit counseling to deny making a loan to you, but it's not because it impacted your credit score.

If you use one of the 'debt relief' services, where they withhold your payments, that is very likely to have an impact on your credit score, as your payment history is one of the main components of your credit score, and having written off accounts (what happens after about 6 months of withheld payments) is a definite derogatory mark for your score.

AJ
-not a Dave Ramsey fan
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AJ,
Very well said, and researched.

Thanks.
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AJ's analysis is correct and very good. My only additional comment is that the "debt relief" has more issues than listed.

'Debt relief' typically does as Dave suggests, and holds client payments (often not in trust funds) to force creditors to write off debt, and then 'negotiates' settlements, all the while, charging outrageous fees.

Plus the possibility of taxes on the "forgiven" debt which is the inflated value after all of the fees for non-payment.

The percentage they claim to have forgiven is often based on the final value and not the initial value before stopping payments.

This can create a life long problem where the debts can resurface from questional credit collection companies. The old debt can resurface if you acquire a credit account from the same company at a later date.
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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
ralph

* $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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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?

No, from your description, the DC company was a 'debt relief' company. 'Debt consolidation' is often another name for 'debt relief.'

The CC approved company sounds like it's a credit counseling agency, although they may not be certified by the NFCC. NFCC certified agencies typically help their clients do budgeting so that they can live within their means and still pay off the debt.

That said, your friend is always free to ignore any budgeting advice that was given, as long as he makes the required payments to the credit counseling agency, so it may be that he was given the advice and chose not to follow it.

AJ
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Insurance companies are NOT your friend (the employees are 'friendly but...)

A good insurance agent recommends products that fulfil your needs and not just the highest commission. Where things can go badly wrong are high commission products such as annunities and universal life products.
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That said, your friend is always free to ignore any budgeting advice that was given,

A friend kept asking for advice and then doing the opposite. At some point I gave up.
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AJ's analysis is correct and very good.

I've never seen a single analysis of hers that wasn't. If I ever reach a point of senility or whatever where I need some kind of "trustee" or "power of attorney" type person to handle all my crap, I would seek her out and beg. I would trust her with handling my affairs before/above any friend, any relative, or any "adviser" type professional that I've ever met. She's the only person I've EVER met on the planet that I actually think might be able to handle my crap better than I could have.

xtn
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Gee, thanks xtn!

Would that mean I could drive your car, too?

AJ
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Would that mean I could drive your car, too?

I would give you the car if you took the job offer.

xtn
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I would give you the car if you took the job offer.

He's saying that because if he's too incompetent to manage his finances, he's too incompetent to drive his car.

PSU
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