“Dear Steve,
I work full time…finally… make pretty good money, I am young, married, no kids and it is my goal to buy a house in the next 12-18 months. I have about 11000 in super high interest rate credit cards.
I have been speaking with Money Management International about a payment plan. They take out 300 a month at about a 8% interest rate or so to pay off my debt. I understand about how the credit counseling works. I am 100% confident that I can more than exceed the minimum monthly payment for that. What I am concerned with is that using a counseling company goes on your credit report as a chapter 13? I guess I wont be able to qualify for a loan until two years after I have payed everything off. I could liquidate some of my assets and pay off the debt in full tomorrow but my goal was to build back up my now bad credit to what it was before i went into debt.
Should I just suck it up and pay the high rates till my cards are gone or save the money that I would be paying to the credit companies by using MMI?
Thank you so much.
Banks”
Dear Banks,
Credit counseling programs used to be reported under the same code 7 as bankruptcy on the credit report but it is not any longer. However, it can still impact your credit report and credit score indirectly.
When you enroll in a debt management program with any credit counseling agency, the cards you include will be closed by the credit card company. The banks are not going to give you a reduced interest rate and let you still use the card. No gain, no pain.
The closure of those cards hurts your credit report. They will show as closed by the lender and the closing of the history and current reporting of those cards can hurt and reduce your credit score.
A better approach might just be for you to investigate the peer-to-peer group LendingClub.com and apply to get a debt consolidation loan. The loan will be at a fixed rate and depending on your credit it could be significantly lower than what you are paying now. With the loan the cards can be paid off, but not closed.
The loan will report to the credit bureaus so with the loan and keeping the cards open but paid off your credit score should actually go up.
Lenders with Lending Club get a better return on their money than leaving it in a savings account. People like you and me lend through Lending Club to people like you and me. In fact, I happen to be a lender there myself. Who knows, maybe I’ll be one of the investors that helps you out. Wouldn’t that be cool!
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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