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CREDIT COUNSELING SERVICES-SLEEPING WITH THE ENEMY

Credit counseling services are organizations that help customers deal with their debt problems. These organizations are supposed to teach you how to use credit wisely, develop a budget, manage your money better, assess your financial situation, and negotiate payment plans with your creditors.

In theory, the program might work something like this. In exchanging for a monthly fee, the staff of the credit counseling service (or the independent credit counselor) works with you and your creditors to negotiate a payment plan you can live with. Then you give money to the program, which pays it out to your creditors. Most people get involved in this kind of program when they are already behind on their payments, and thus the creditors do have some incentive to negotiate. And theoretically, after a few months of payment through such a program, a creditor will report to the credit bureau that your account is now current, potentially improving your credit rating.

But these plans have several disadvantages you should consider carefully if you are thinking about this approach to dealing with your debts:

• Creditors do not have to negotiate with a credit counselor or credit counseling service, so some debts may not be included.
• These programs only address unsecured debts like credit cards. They don't provide any help with your overdue mortgage payments or your repossessed car.
• The time required to set things up when you join such a program may result in a month of missed payments for all your accounts, even those that were current when you joined the program.
• Some creditors will report your account as being paid by a debt management company or under arrangement. Future creditors may consider this a mark against you.
• Unless a creditor specifically agrees, in writing, that at the end of the program your account will be marked "satisfied in full" or "paid as agreed," the account will probably be marked "R9." This is the lowest rating an account can have, short of your filing for bankruptcy. The R9 rating will remain on your credit report for seven and a half years.

If you are having financial hardship and are considering filling for bankruptcy in the Sacramento area, please call a Sacramento Bankruptcy Attorney toll free at 1-888-446-4333 for a FREE confidential Sacramento Bankruptcy consultation.

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Allaye Chan Law
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Sacramento, CA 95814