Terri Wants to Know “Is There a Way to Get Out of Debt Without Ruining Our Credit?”

Terri wrote and asked her question through the GetOutOfDebt.org site. If you have a credit or debt question you’d like to ask, just visit this page and ask. My help is totally free.

“Dear Steve,

We have appox $50,000 in revolving debt, 2 vehicle payments, 1st and second mtg, we pay everything on time and have a small amount left over each month, but feel everything closing in and have fear starting to come over me about all of the debt.

Is there any way to get some help even if we are paying on time ….without ruining our credit?


Dear Terri,

Yes, there is a way to get out of debt and improve your credit at the same time. The only problem is, it’s hard to do and requires perseverance.

The issue you are facing right now is that it feels like the walls are closing in. At times like that people often leap to solutions like credit counseling or debt settlement that they think will be quick and painless fixes, they are not.

You do have a lot of debt and now is the time to start to dig your way out. By making at least the minimum payments on your debts and then using whatever money you may be able to find as an extra monthly payment you can start your journey to eliminating your debt.

By paying down your debt with at least monthly minimum payments while focusing on eliminating one debt at a time your payment history on your credit report will show that you met your contractual obligations, were on time and not delinquent at all. All those factors will continue to increase your credit score and you reduce your debt.

It sounds to me like your debt to income ratio is pretty high, meaning that most of your income is pledged to debt repayments. That makes it harder to do a balance transfer of your highest interest rate debt to pay that one off interest free. That approach is wonderful as long as you can completely pay off the transferred balance before the introductory rate expires. I just wrote about my own recent experience in doing a balance transfer.

You can also easily adopt the debt snowball approach for effective emotional and financial debt reduction. It is an approach that works, and works well.

The key here is that you need to trust your instincts. Your subconscious is telling you, through fear and worry, that your financial life is out of balance. You should listen to to those warnings but there is no need to panic, just make a choice on which path you will follow to get out of debt and execute that plan.

If you feel like you just can’t do it on your own then look at a credit counseling program, it will screw up your credit but by sending one payment to them every month they will then take care of distributing your payment to your creditors.

But you really don’t need a credit counseling program at the moment since you can do this yourself and by doing so it will achieve your goal of getting out of debt and not harming your credit report or reducing your credit score.

There is hope.


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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3 thoughts on “Terri Wants to Know “Is There a Way to Get Out of Debt Without Ruining Our Credit?””

  1. Steve,

    Since January of 2006 things in the debt management industry have changed quite a bit. In January of 2006 a new law went into effect requiring banks to raise minimum payments by being required to charge the monthly finance charge PLUS 1% of the balance. The majority of my clients are current on their accounts when they get to us. So if a client has a Chase account for example at $10,000 at 29.9% interest he will have a minimum payment of around $400 a month. In the program Chase would require $200 per month on $10,000 and they would drop the interest rate to 6%. I have personal friends that we have checked their credit reports after they have been with me as clients. I have all of our clients close their accounts before proposals are submitted. By doing this in many cases with banks like B of A, Chase and Citibank nothing is reported at all. One of my personal friends that is also a client has 3 chase accounts with me and a B of A. B of A has changed too they offer excellent rates now, his B of A account is at 7% and his 3 Chase accounts are at 6%. His credit report does not even show that he is in the program. I have a median credit score of 797, his score is higher than mine and he has been in the program for over 3 years. If you go to Mike Killian’s site you will find articles that he and I wrote together detailing “Specialized” debt management like what we offer. Today I had a new client with over $100,000 at interest rates ranging from 24.9% to 29.9%, he is current on all of the accounts. His payment on his own was $4056 per month, his required minimum payment in the program is $2300 and his savings in interest are astronomical and his payoff times will be reduced just under 5 years if he stays at the minimum payment. When consumers are maxed out, current and at 24.9 to 29.9% interest they NEED a SPECIALIZED DMP. Also companies such as Chase, B of A and Discover still re-age accounts and the ones that do report if they do it does not drop the credit score even 1 point. Companies like Discover and HSBC report for one reason only, to prevent DMP clients from obtaining more “Revolving” credit while they are in the program. Back before January of 2006 the monthly payments did not change, since then when clients have very high rates the monthly payments are also reduced since the new law of 2006. There have been many changes since you were with DCA that you may not be aware of. And I agree that my firm is not the norm and this can be verified by checking my BBB Rating and my retention statistics. SPECIALIZED debt management is more work but if it is done correctly consumers can enter the program, they are not required to include all of their accounts like the old CCCS policies and they can get both reduced payments AND reduced interest without damaging their credit at all. And I have thousands of clients that will verify this who have entered my program, been approved for mortgages with a letter from us and finished debt free in a fraction of the time that they could have done it on their own with such plans as “Snowballing” and other plans. You can “Snowball” all you want but if you are at 24.9% it’s going to take you a long long time to finish. There are key issues here that have to addressed when handling current DMP clients that are concerned about their credit ratings while getting the benefits of the DMP rates. These include, having the clients close their accounts prior to proposal submissions, changing of due dates if necessary and intense follow up on proposals plus timely payments made on the clients behalf DAILY not twice a month like many of the old so called Non Profit firms. Since December of 2000 Mike Killian has written about 15 articles about my company and through his work when he was with About.com he has referred thousands of clients to me. You can ask hi about all of this as I am aware you know each other and he will verify everything I have said here and also tell you that off all of the clients he referred to me he never got a complaint from one of them.

  2. I would like to CORRECT Steve on one comment he made here. A properly administered debt management program like the ones that I offer at my company do not “Screw Up” your credit. Even if you have creditors like Discover or HSBC that always report that you are in the program the fact that they report that you are in the program does not drop your score by even 1 point. You can damage your credit by including an American Express account because they do not have their own debt management department and they farm out the debt managements to NCO a collection agency which can result in you being reported as in collections. I have been in business for 10 years and I have gotten thousands of clients mortgages approved BECAUSE they are in my program. If you go with a company that doesn’t get proposals accepted quickly, doesn’t rearrange due dates and doesn’t get payments out in time you can “Screw Up” your credit but if it is done properly it does nothing to your score at all. Go to Mike Killian’s site at this link and read the truth about this. Too many so called “experts” keep telling the general public that debt management programs damage your credit. THIS IS NOT TRUE AT ALL IF IT IS HANDLED PROPERLY. After 10 years and approximately 10,000 clients serviced I maintain a 78% retention rate and have an A+ rating with the BBB with ZERO complaints. I specialize in sophisticated clients that include doctors, lawyers, professionals, and business owners. If I was “Screwing Up” their credit I would have a HUGE list of complaints against my company, I have ZERO. So once again get your facts straight, if debt management is handled properly it does not “SCREW UP ” credit it maintains and improves it and allows consumers to pay off the accounts at drastically reduced interest rates over much shorter periods of time.


    • Jim,

      Thank you for your comment. Nice to see Mike mentioned. In fact he’s on my testimonial page saying “Steve was far and above more savvy and more advanced in his down to earth approach. What I did learn was that his ideas and mine were closely linked and I firmly believe his integrity is far ahead of the majority of so-called credit counselors.”

      When people enter a debt management program they are either about to fall behind or they are delinquent. Additionally, some creditors will not reage the account until three consecutive payments have been received. This is also reflected on your credit report.

      Since a regular credit counseling payment is about what the minimum payment is on the cards, not much real payment relief is experienced, and this is a problem. If monthly payments were tight before, they will be tight after. The exception to this is if the consumer was behind on their bills when they entered a debt management program. Groups advertise that they can reduce monthly payments but this is stretching the truth. What they can do is get you back to your regular payment if you are behind.

      While you may feel your company does not create credit report issues and errors, you are not the norm.

      The real issue here is not what you or anyone else promises, but what is the most appropriate solution for the person in financial trouble.



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