April 1999Living paycheck to paycheck? Worried about debt collectors? Can’t seem to develop a workable budget, let alone save money for retirement? If this sounds familiar, you may want to consider the services of a credit counseling agency. Usually nonprofit, these agencies work with you to solve your financial problems — sometimes for free. Credit counseling agencies may offer educational materials and workshops, or help you develop a budget. Many agencies offer services nationwide through local offices or the Internet. Look under "credit counseling" in your telephone directory or your Internet search engine. Debt Repayment Plans
If your financial difficulties arise from too much debt or an inability to repay your debts, a credit counseling agency may work out a Debt Repayment Plan for you. In these plans, you deposit money each month with the credit counseling agency. Your deposits are used to pay your creditors according to a payment schedule the counselor develops with you.
As part of the repayment plan, you may have to agree not to apply for — or use — any additional credit while you’re participating in the program. A successful repayment plan requires you to make regular, timely payments, and could take 48 months or longer to complete. Some credit counseling agencies charge little or nothing for managing the plan; others charge a monthly fee that could add up to a significant charge over time.
A debt repayment plan does not erase your credit history. Under the Fair Credit Reporting Act, accurate information about your accounts can stay on your credit report for up to seven years. A bankruptcy can stay on your report for ten years. In addition, your creditors will continue to report information about accounts that are handled through a debt repayment plan. For example, creditors may report that an account is in financial counseling, that payments have been missed, or that there are write-offs or other concessions. But a demonstrated pattern of timely payments should help you get credit in the future.Secured and Unsecured Debt
Your debts are either secured or unsecured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, the lender can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset. Examples include most credit card debt, bills for medical care, signature loans and debts for other types of services. Debt repayment plans usually cover only your unsecured debt. If your secured debts are not included in the plan, you must continue to make payments to these creditors directly.
When you borrow money to buy a car, the lender generally holds the title to the car until the debt is paid in full. Most automobile financing agreements allow the lender to repossess your car if you stop making payments. No notice is required. If your car is repossessed, you may have to pay the full balance due on the loan, as well as towing and storage costs, to get it back. If not, the lender may sell the car, perhaps for less than what you still owe. You still are responsible for the difference. If you fall behind with your car payments, consider working with the holder of the title of your car to sell it yourself. Pay off the debt to avoid repossession and a negative entry on your credit report.
If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders will work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, you may have to pay extra toward the past due total. Lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly payments. Ask about any fees charged for these changes, and consider how much they add to the total cost of your loan.
If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development (HUD) or the housing authority in your state, city, or county for help in finding a housing counseling agency near you.Choosing an Agency: Questions to Ask
If you want to work with a credit counseling agency, interview several. Here are some questions to ask. Check with your state Attorney General, local consumer protection agency and the Better Business Bureau to find out if consumers have filed complaints about the provider you are considering. Any reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If not, consider that a red flag and go elsewhere for help.
Services and Fees
The U.S. Consumer Information Center distributes a variety of brochures on credit related issues. To request a Consumer Information Catalog listing these publications, visit the web site at www.pueblo.gsa.gov, call 719-948-4000 or write R. Woods, CIC—8C, PO Box 100, Pueblo, CO 81002.
Your local Cooperative Extension Service office conducts educational programs on credit-related issues and produces a variety of educational materials. Check your local government listings in the phone book for the office nearest you or check the Internet at www.money2000.org.