I’ve written a lot about the misperception that people have that going into a CCCS or credit counseling program involves some sort of negotiation with your creditors. It doesn’t.
You will notice that none of the credit counseling groups say that they are there to defend you and put you first. This is because no matter what they say, as long as the creditors are generally paying them to collect money from you, a credit counseling group has a terrible conflict of interest. The more the credit counseling group collects from you, the more they make.
On one hand they want to help consumers, but on the other hand they have to appease the people that pay them, the creditors.
There is no negotiating with creditors to come up with your monthly CCCCS payment. Your payment is calculated based on the terms that the creditors have told the CCCS office that they will accept. It does not matter if you can’t afford it. It is what it is.
Here is an example of the terms that Citibank tells credit counseling offices that they need to meet.
Citibank CCCS Credit Counseling Formula
Monthly Payment Calculation – Multiply balance by 2.23% or a minimum of $20.
So if you owe Citibank $10,000 your monthly payment in a credit counseling program will be a minimum of $223 or it is not acceptable to Citibank and bankruptcy might be a better option for you.
Interest Rate Adjustments – While in the credit counseling program your interest rate will be changed to 9.9% once the proposal from the credit counseling agency is accepted by Citibank and the first payment is received within 15 days of the accepted repayment proposal from the credit counseling agency to Citibank.
Late or Overlimit Fees – While you are current on your payments in the credit counseling program you will not be charged late or overlimit fee.
Bring Account Current – Citibank will NOT bring your account current and show you as current on your credit report if you were past due to begin with. This past due status will be reported on your credit report every month until you bring your account current and make up all the past due payments or you pay the debt off in full.
You need to consider this carefully since it will show as a negative credit report item for the entire five years you are repaying the debt. But if you had gone bankrupt it would only be reported for as little as seven years and you would have either discharged the debt completely or the court would have created a monthly repayment based on what you could afford at 0% interest.
Drop & Reinstatement – If you miss one payment to the credit counseling agency then Citibank will drop all the special terms, raise your interest rate back up as high as they want, charge you late and overlimit fees and you will go back into collections.
You can go back into the credit counseling program as long as you increase your payment to a point where your entire balance is paid off within 5 years from the date you first enrolled.
Now, a credit counseling program can be beneficial to you if you are currently behind on your payments but you could make the regular payment each and every month until it is paid off at your old minimum payment amount before you got behind. For some that is possible to do.
But if you notice, the credit counseling system is not setup to help you get out of debt. While the interest rate is reduced, the monthly minimum payment if you are current on your account, is not. In fact it is a bit higher.
The irony is that if you could afford the regular payment, you’d pay it. What good does a reduced interest rate do if the payment is not lowered to where it is affordable?
It can come as no surprise that people that find a credit counseling program most attractive are those that are willing to take a beating on their credit report but can afford the monthly payment and just want a lower interest rate.
And to add insult to injury here, not only is Citibabank screwing you but Citibank stopped paying most credit counseling groups money for helping their customers, so they are screwing the credit counseling groups as well. If you have a Citibank debt it is going to be a bottom priority for the credit counseling group since Citibank is forcing them to work for Citibank for free.
Citibank, as part of Citigroup, gets billions of dollars of taxpayer money to help them to deal with their debt problems, but as you can see, you actually get little help as a valued customer when you get into trouble.