Credit Smart

Credit counselors don’t report you to credit bureaus


Agencies’ debt management plans are credit-score neutral

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Dear Credit Smart,
I have about $17,000 in credit card debt due to unforeseen health care expenses to doctors, hospitals, etc., for both my spouse and myself. Our home is in my spouse’s name only, therefore at least they can’t attach our home. Health issues prevent both of us from working. My credit has been good these past 10 years, but payments are getting difficult. I cannot file for bankruptcy as we had to do this already about 15 years ago. I try to stay positive for my wife and children, but it gets harder and harder every day. I’m leery of credit counseling services because I know they report this to the credit bureaus. I would greatly appreciate your input, Susan. Thank you very much – Ed


Dear Ed,
It sounds like you have had a lot on your plate taking care of your family and yourself. From the tone of your question, I have a feeling that you are only able to make minimum payments on your credit cards. If I am correct, it could take you 20 years or more to pay off your debt. Because of those circumstances and the fact that you are not able to work right now, I completely understand your frustration.

Although you said you aren’t worried about losing your home because the house is in your spouse’s name only, practically speaking, it is highly unlikely that this could happen anyway. Credit card debt is unsecured debt, and the only way to do what you suggest is through the court system. It is likely to be too much trouble for the creditors to pursue this route, if it is even possible since many states have homestead exemptions. I don’t mean to say it can’t be done or is never done, but it does take time and effort on the part of the creditor to try to do this. I would, however, caution you and my readers to never ignore a court summons, because that is the first step. If you don’t show up to defend yourself it’s nearly certain you will lose.

I also want to say that bankruptcy exists in this country for many good reasons. While I understand your reasons for not wanting to do that again, it might still be an option for you. I am not a lawyer and cannot give you legal advice, but I can tell you about the options available to you. From your question, it seems that you just cannot face the prospect again, which is totally understandable. Should you change your mind, you will need to seek assistance from an attorney.

You say you are leery of credit counseling because you know they report to the credit bureaus. This is not the case. Your creditors may report to the credit bureaus if you enroll in a debt management plan (DMP) to pay off your debt, but the credit counseling agency that you work with to set up such a plan will not. Even if one or more of your creditors report that you are on a plan, that in itself will not affect your credit score. This is considered a neutral mark in the scoring algorithm. What will affect your score is the fact that the accounts placed on a DMP are closed, which reduces your available credit as well as your credit score.

I encourage you to call a not-for-profit credit counseling agency associated with the National Foundation for Credit Counseling and give them the information you have given me. Your counselor will go over your entire financial situation and help you to come up with all of the options available to address your debt.

A debt management plan may or may not be one of those options, but it seems from what you have told me that it might be a good fit for you. You should see a reduction in your interest rates, and your payment may even be less than you are paying now. Another upside to a DMP is that you will pay your debts off in five years or less, which is far better than the 20 or more years you are now facing.

Along the way, your credit score should bounce back if closing the accounts caused it to drop because you will have consistent on-time payments, the No. 1 factor in credit scoring. You will also have taken control of your financial health, which should help you feel more useful to your family and yourself.

Remember to always use your credit smarts!

See related:Calculator: The true cost of making minimum payments, 9 things to know about debt management plans

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