You are in a financial quandary. You may even have missed a payment on one or more of your credit cards. How are you? Some people consider consumer credit counseling because they’ve heard that these services can help alleviate debt problems. But is that the best solution?
The consumer credit counseling (CCC) service industry was once dominated by the National Foundation for Credit Counseling, whose nonprofit affiliates negotiated lower interest rates and payment schedules for defaulters. However, a surge in consumer debt in the 1990s produced hundreds of competitors. Some do a good job of negotiating repayment plans. Others charge huge upfront fees and pocket much of the money that lenders should pay out.
Of those who have debt-payment plans, Lydia Sermons-Ward, spokeswoman for the National Foundation for Credit Counseling, said about half are expected to successfully complete their plans. The other half was expected to drop out and some to file for bankruptcy.
There are several other problems with consumer credit counseling services. For example, any credit card company will report you late even with CCC, and late payments lower your credit score. When you go through a “debt settlement” specialist, lending companies report that your accounts have been paid less and not paid as agreed. The worst problem is that many home lenders, mortgage brokers, and banks treat consumer credit counseling the same way they do bankruptcy.
Another way to consolidate your bills is to refinance your high-yield credit cards and personal loans into a home equity loan (second mortgage). Home equity loans offer lower interest rates than those you pay on your credit cards, especially if you pay universal default interest. Gerri Detweiler, author of The Ultimate Credit Handbook, says if you’re a day behind on a payment to one creditor, you could be subject to a default rate of up to 29.99 percent on many others.
Instead of taking advantage of these opportunities, take advantage of today’s lower interest rates and get a home equity loan. Not only will you have peace of mind knowing your overdue debt is settled, but you’ll also benefit from lower monthly payments and up to 100% tax deductibility on the interest you pay on your new second mortgage loan.