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Five Cent Nickel has an excellent post on getting Called by a Collection Agency, and before I could add info, made Another great entry about the Fair Debt Collection Practices Act. I feel like I’m losing an arms-race for good information.

So I thought I’d share my experience with Credit Counseling companies. Specifically the Consumer Credit Counseling Service (CCCS).

Back in 1993, I and the family were in tight straits when the wife left the military (because of a Reduction in Forces action) and I was in college. Things went downhill pretty quickly after that and we turned to CCCS for help.

The Consumer Credit Counseling Service, like other debt-consolidation/counseling companies, negotiates with your creditors to get a lower interest rate (sometimes a zero interest rate) and sets up a payment plan though them, where they receive one payment from you, and disburses it to your creditors. At first this sounds like a good deal. There are typically no additional costs to this, and your interest rates do get lowered.

We joined CCCS and started making payments to them. Sure enough, many of the companies we owed money to reduced the interest rate significantly, or stopped charging interest altogether. A few months went by and everything seemed to be going fine.

Then I ran the numbers and found the first sign that things weren’t as great as we thought. Some of the accounts balances were actually going UP! The estimated payoff dates, according to my calculations, would be DECADES away at the rate we were working, and would be THOUSANDS of dollars higher because of the increasing amounts. CCCS divided up the amounts evenly, not paying more toward those with an interest rate so the payments didn’t even cover the monthly interest payments.

Next thing I discovered; CCCS ‘requests’ that you close all the accounts immediately to prevent you from getting more in debt. As everyone knows now, that can have a detrimental effect on your credit score. But to my surprise, many of the credit companies CLOSED my account as soon as I joined CCCS, whether I asked or not. Annoying, but not terribly surprising.

The final straw was when I found out that on your credit report, companies treat CCCS as a BANKRUPTCY. So, trying to save my credit and pay back my creditors actually penalized me as if I declared bankruptcy and DIDN’T pay the creditors. At that point, I canceled the CCCS and started paying my bills regularly again, interest and all.

Happy Ending - This was also the first time I used a debt snowball (not knowing that was what it was at the time) to pay off my bills, Highest Interest Rate First style.

Technorati : credit, credit card, finance, job loss, personal finance

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