I'm Currently in Debt and Not Getting Anywhere. - Penny

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“Dear Steve,

I am currently in debt with credit card debt totaling roughly $36,000. I am married and we are not having trouble making minimum payments. However, I feel like we are getting nowhere, and can’t really afford to make more than the minimum payment. I have contacted MMI (Money Management International) and they can lower my payments by around $40 less than what I am paying currently just paying minimums. And of course, pay the debt off much faster than I could doing it on my own.

What I need to know is how badly is it going to damage my credit, which so far is still in good standing. And is it going to raise my insurance rates etc…?

Penny”

The Answer:

Dear Penny,

These are good questions to ask Money Management International directly.

MMI is a credit counseling company. When you enroll in a debt management plan the creditors will close the cards that are included. It’s not the enrolling that hurts your credit, it’s the closing of the cards by the creditors that cuts off your credit history and lowers your score.

Credit history is a significant component of your credit score. As such, the average age of your credit lines can be a strong indication of your credit history. Care should be used in keeping old accounts open, active, and in good standing. – from Credit Karma

So considering that, the closing of the cards can reduce your credit score and a lower credit score can lead to higher insurance rates and a higher cost of future credit, here’s my take on it.

It might make sense, since you still have good credit, to look at the peer-to-peer lending network LendingClub for a real debt consolidation loan at reasonable rates. You could consolidate up to $25,000 of your highest interest rate debt and leave the cards open to keep your score up. Check out LendingClub and find out how I can be one of those people that will help fund your debt consolidation loan.

Let me know what you think of this approach. Does it seem to make sense for you?