Credit Counselors' Crunch

Many people are learning the definition of fraud by participating in credit counseling repayment plans.  There are a number of problems with typical plans.  1) they apply only when a creditor voluntarily agrees to the program, 2) they do not usually apply to secured creditors, 3) many times the money either doesn't make it to the creditors, or when it does it is much less than the consumer expected, and 4) the program appears as a bad mark on your credit report.

Some of the abuses are listed here in this testimony before the FTC.

A while back I had a young couple come in my office with a history of dealing with a credit counseling program.  Basically their agreement was to pay the credit counselor three monthly payments of $1600 each.  After that the payments would drop to $700 monthly each for the remainder of the three years.  What they were supposed to do is take the extra $900 monthly that they were no longer paying the credit counselor ($1600 minus $700 equals $900), and deposit it in a bank account for those three years.  By this point they would be three years behind on their creditors, and have a bad history - so bad that the creditors would be worried they would not get paid.  They would then take the saved money and offer pennies on the dollar to settle the credit accounts.

Let me point out the predatory practices involved here.  The credit counselor was taking three years worth of income - $27,900 (3 times $1600 plus 33 times $700), and really offering nothing in return but a simple "idea."  If the consumer could find the self-discipline to put 33 months of payments into the savings account, their credit is still ruined.  By three years, one of the creditors would surely have filed suit.

What You Don't Know Can Be Hurt By Your Credit Card Company

From USA Today:

Apparently in this credit-strapped society, credit card companies are taking it into their own hands to make sure that if you default on your cards, you default on a lower amount.

An excerpt from the article:

"Here's how that happens: Let's say a cardholder has a credit limit of $10,000 and a balance on the card of $4,000. The card company worries that large balance may increase the prospects for default, so it lowers the credit line to $5,000."

But in doing that, it completely changes what is known as the credit utilization rate, raising it from 40% to 80%. That is then factored into the calculation of one's so-called FICO credit score, which measures creditworthiness, according to Craig Watts, a spokesman for FICO-creator Fair Isaac Corp."

Bottom line in my mind is to eliminate the credit card debt and never go there again. They have no concern for the effects their actions have on you. Remember, the borrower is slave to the lender. Prov. 22:7

Declaring Bankruptcy Can Improve Your Credit Score

According to smartmoney.com filing bankruptcy can actually increase your credit score. Review the article here.

There are a number of things that can adversely affect your credit score. This includes Bankruptcy. However, Bankruptcy can actually clear up some of your credit. This is because 1) many, if not all, of your debts will be discharged, so you will no longer have debt and other obligations ahead of the creditor checking your credit report; 2) once you have filed Bankruptcy, there are set amounts of time before you can file again, and therefore any credit your potential lender offers you is relatively safe from Bankruptcy; and 3) taking action, even Bankruptcy, shows you are doing something to improve your credit standing.