By Michelle Petrowski, CFP
Credit card debt can accumulate for a variety of reasons, and for the most part, it can be a source of shame and embarrassment. It’s certainly not something that many people would be eager to discuss with their financial advisor, friends or family. But when you do, be careful! Everyone has good advice, once asked for, and sometimes the advice never seems to end, even when it’s not asked. You will hear from those who have used a personal loan, a debt consolidation loan, a HELOC on their home, balance transfers to credit cards at 0%, a 401K loan, a debt repayment plan according to the snowball method and maybe even a debt relief company, to name a few.
Nonprofit Debt Management Credit Counseling Companies
There are many options, with pros and cons. The one I really like, for many reasons, is the debt management company run by a non-profit consumer credit counseling agency. I speak from personal experience. Ten years ago, because of my divorce, I had accumulated a large credit card debt for attorney fees and divorce costs. This is the route I have chosen.
Now that’s embarrassing to say. But I had exhausted all my savings and this was the best option for me and my family. I didn’t want to touch my retirement accounts.
If you don’t know them, a debt management company works with your creditors to restructure your debt by creating a debt management plan (DMP) tailored to your unique situation to help you pay off debt quickly. For a fee, these companies negotiate lower interest rates with your creditors and consolidate your unsecured debts into one monthly payment. This simplifies the repayment process without you being overdue, with no derogatory event on your credit file (unless of course you are already in arrears), and you know exactly when the debt will be repaid. It can definitely be a stress reliever: one payment, one end date, and a lower interest rate.
Yes, you should be prepared to close these accounts, but no one looking at your credit report knows you are enrolled in one of these programs. Be aware that credit scoring models use a variety of credit age-related measures when calculating your score, including the average age of your accounts, the age of your oldest account, and the length of time elapsed. opening an account. So closing accounts will impact the length of your account history, which could potentially impact your score if you close an account that’s been open for a long time. But for me, in my situation, the benefit outweighed the small impact it had on my score.
What is a for-profit debt relief company?
There are other debt relief companies that seem to follow a similar process, but they are “for profit”. They almost always require you to be past due on your accounts (and for several months in some cases) so that they can negotiate a lower interest rate on your behalf and their fees are usually higher – remember, they are “for profit”. Additionally, “delinquent” on your obligations to enter one of these programs will certainly have a negative impact on your score, far greater than closing a checking account.
Find an agency
Are you looking for a debt management company? You can try the Financial Advisory Association of America(800) 450-1794, or National Credit Counseling Foundation, (800) 388-2227. You can also check any debt relief service with your state attorney general and local consumer protection agency before deciding to do business with them.
Finally, personally, I don’t know anything about the companies mentioned in these articles, but Forbes and NerdWallet recently published articles that may provide additional information and direction for any research on this topic, as well as the Federal Trade Commission (FTC) article “Dealing with Debt.”
Remember, do your homework. Everyone’s situation is different! What worked for me, your neighbor or a family member may not make sense to you.
About the Author: Michelle Petrowski, CFP®, CDFA®
Michelle Petrowski, CFP®, CDFA® (formerly Michelle Buonincontri), is a financial planner, wealth manager, financial divorce strategist, and personal finance coach. She is the founder of to be in abundance and Being aware in the event of a divorce, as well as an avid volunteer with Savvy Ladies in New York and Fresh Start Women’s Foundation in Phoenix, and worked closely with American Service members in Arizona. Michelle has been featured in CNBC, Forbes, MarketWatch, Investment News, Yahoo Finance and other media. You can email her at [email protected] or schedule a Q&A call with her here.
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