To their credit: Counseling center busier than ever
Check your credit
You can go online to www.annualcreditreport.com to receive free copies of your credit report from Experian, TransUnion and Equifax.
You are allowed one free credit report from each company per year. Specify that you want the free report. Your credit score will cost money. You also can request free reports by calling 1-877-322-8228.
JANESVILLE — The staff at the non-profit Consumer Credit Counseling Service of Beloit and Janesville has never been busier.
That's no surprise in a county slammed by plant closings, layoffs and cuts in work hours.
"People who have lost jobs or have had their hours and overtime cut are continually walking through the door," said Mary Herrmann, a counselor for 12 years.
In the past, staff might see someone behind on his or her mortgage once or twice a year, Herrmann said. Now, it's once or twice a day.
"It's just a really different mix out there."
Many people are in survival mode—keeping a roof over their heads, paying the utilities, payments on their vehicle and buying food.
"It's just pure survival, and many people don't have enough for survival," Herrmann said.
That's because in the past, the typical client was one whose income was equal to the money going out, said Rod Benstead, director and counselor at the service.
"There wasn't a lot of room there for anything to happen. People had been living on the edge, perhaps with both spouses employed. Then, when someone's hours are cut back and the income decrease, they just don't have anything to fall back on. There's no surplus to work with.
"An income decreases, and it's over the edge."
Hermmann described a typical scenario: A couple thinks they are doing OK, but they spend more than they bring in. The extra goes onto credit cards.
So they get an equity loan on their home and pay off the cards. But that doesn't cure the root problem, so the credit cards run up again.
Then, they might borrow from their 401(k).
That leaves them with a first and second mortgage, a depleted 401(k) plus credit card debt. The counselors have seen couples with $20,000 to $30,000 on credit cards.
"That's the toughest appointment," Herrmann said. "They come in thinking they have a simple credit card problem. But not only will bankruptcy not help them, they'll sometimes have to walk away from their house and return the truck they have themselves buried so deep."
A counselor analyzes a person's finances as part of the service, tracking the money coming in and going out. That includes expensive haircuts, video rentals, even license plates for the vehicles. It can be a wakeup call, Herrmann said.
"For the first time, they've faced the idea that, wow, there's 800 more dollars going out than coming in," Herrmann said. "The credit cards have been there."
More and more people are choosing bankruptcy as their only financial option.
But before they can file, they must go through credit counseling, a good provision in the new bankruptcy laws, Hermmann said.
That's because declaring bankruptcy doesn't change the habits that get people into financial trouble, causing some people to file for bankruptcy two and three times, Herrmann said.
"They never cure that root problem." Hermmann said.
Mar 30, 2009 at 12:58 p.m.
Suggest removal
Yes, you do pay back 100%, BUT they usually can negotiate reduced interest rates which means even though you pay back 100% of the original principal, you pay back a lot less in interest. The creditors usually agree to work with CCCS and reduce interest rates because they know that the next step is usually bankruptcy, which they don't want. However, be aware that the terms of this negotiated reduction are that you don't open any new credit accounts or spend on any of your existing cards. If you do, then the creditors will see that as a violation of the agreed terms and therefore return your interest rate back where it was. These terms are a good thing, because you should really be able to live month to month without using credit cards at all.
Mar 30, 2009 at 11:02 a.m.
Suggest removal
There's a hidden aspect to this that isn't written about much. Beginning in 2007 a lot of the credit issuers became more cautious and began trimming credit lines. You often don't get an announcement when this happens. But say you had $800 balance on a $2000 credit line, and now you have $800 on a $1000 credit line -- or even an $801 line. This then feeds into your credit report as higher credit utilization. Because of the "universal default" built into most credit card contracts, they can now raise your rates based on your overall credit picture having deteriorated, even though your balance stayed the same. This happened to a family member.
.
Anyway, my personal experience is that the local CCCS is highly recommended. You do need to keep in mind that their plans are funded by the credit card companies and you will be paying back 100%. If you can handle a gradual paydown of your debt, this is much better than the alternatives.
.
Definitely beware of non-accredited credit counselors and "debt settlement" companies. They can trash your credit in the process of playing hardball with your creditors, all while happily collecting their fee from you. Tou can settle with a creditor yourself by coming up with a substantial cash buyout, although there's a catch there too, because the written-off debt counts as taxable income for you.
Before you post a comment, consider this:
Note: GazetteXtra.com does not condone or review every comment. Read more in our User Policy AgreementPost Comment
Commenting requires registration.