Credit counselor Todd Ossenfort, aka The Credit Guy, answers a reader’s question about whether it’s wise to embark on do-it-yourself credit repair.
Dear Credit Guy,
I live in West Texas and have run up $24,000 in credit card debt. I would like to close out most of my credit card accounts and negotiate for lower interest rates. Can I do this myself by phoning or writing the credit card companies, or would I be better off reporting my situation to a nonprofit credit counseling organization to do it for me? If I pay them a flat monthly fee, how can I be sure they’ll really use it to pay down my debts? Will closing out most of my credit card accounts affect my credit rating? Can I keep one credit card open with the lowest interest rate?
— Smooth Negotiator
I am glad to know that at $24,000 in debt you have realized that it is time, or perhaps past time, to deal with your situation. Carrying that much credit card debt is a heavy load to bear and begins to drag you down fairly quickly.
Closing your credit card accounts will affect your credit score as one of the factors considered in formulating the score is the length of time you have had an account open. If the credit card accounts are among the oldest on your credit file, then the points for that factor will go down. However, if closing the accounts will keep you from spending, the dip in your credit score may be well worth it.
Negotiating with your creditors yourself is something that you could certainly try to do on your own if you are up for the challenge. The heart of any negotiation is that both sides have something to bring to the table. What you want from your creditor is a lower rate; what you need to give the creditor is a good reason to give you what you want.
Do some research and find out if you qualify for a low rate card or maybe you have already received an offer or two in the mail. Let the creditor know that you are willing to transfer your balances to the lower rate card if you don’t receive a lower rate. Be prepared to follow through if the creditor refuses to negotiate. Let the creditor know how long you have been a customer, how many consecutive months you have paid on time and the interest rate for which you qualify.
Sometimes the customer service representatives that answer the phone are not authorized to make changes to your account. If you run into resistance, ask to speak to a supervisor. Stay polite, don’t lose your temper, keep records of who you speak with and request any change to your account be put in writing.
Using a qualified credit counseling agency to help pay off your debt can be very beneficial. They can help you get your interest rates lowered and you will make only one monthly payment. You will also have an experienced counselor examine your financial situation and provide personalized solutions that will include financial education so you’ll never wind up with $24,000 in credit card debt again.
To avoid any problems with your payments to the credit counseling agency, seek help from a reputable agency. The two leading accrediting agencies for counselors are my own, the Association of Independent Consumer Credit Counseling Agencies, and the National Foundation for Credit Counseling.
And finally, yes, you can keep a low interest rate card open. It would need to be a card that is not included in your repayment plan with a credit counseling agency if you choose that route.
Take care of your credit!
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
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