Ask the Readers: Debt Consolidation or Consumer Credit Counseling?
Published on - April 24th, 2009 (by J.D. Roth) One of my favorite parts of Get Rich Slowly is the weekly “Ask the Readers” section. It’s fantastic to see how well this community pulls together to help each other find solutions to financial dilemmas. Most of the questions come via e-mail, but last week I met a man named Aaron who reads the site. He told me that he could use some reader advice for his situation. Here’s Aaron’s story:
My girlfriend has managed to get in over her head financially. This is partly due to her own foolish spending patterns, but it’s also partly due to her family. She co-signed on a credit card with her father, and then he racked up a few thousand dollars in debt and stopped paying on it. Her sister has several kids and no job, so my girlfriend pays for her phone and car repairs, etc.
I’m not entirely sure of her complete financial situation, and she’s hesitant to disclose everything to me. I want to help her get to a stable point where she can:
- Pay all of her bills every month instead of putting them off, accruing late fees, and dodging calls from creditors.
- Actually start saving some money.
How can I help her to put a plan together to get all of this straightened out? I’m interested in non-profit consumer counseling services, but I’m also wary of companies that will just take money from her and not actually do any good.
This situation sounds tricky because it doesn’t just involve Aaron’s girlfriend, but her entire family. For some people, family comes first, even if that means sacrificing their own financial security. It’s a price they’re willing to pay. Still, it may be possible to help her.
First, I think it’s important to be leery of debt consolidation companies. These are not the same as consumer counseling services. When my brother got into financial trouble, he and his wife sought help from a debt consolidation company. They regret making this choice. The company didn’t do everything they promised, and in fact, made matters worse.
Dave Ramsey is wary of all debt consolidation services, but from what I’ve heard, there are reputable non-profit agencies that can help people with their problems. At MSN Money, Liz Pulliam Weston has put together a short guide to credit counseling. A recent Consumer Reports article suggested starting with these two organizations:
- National Foundation for Credit Counseling
- Association of Independent Consumer Credit Counseling Agencies
I’ve also heard people recommend United Family Services. Also, the U.S. Federal Trade Commission has an on-line guide to choosing a credit counselor. (And don’t forget to that Dave Ramsey’s Total Money Makeover has helped many people turn their lives around — including me!)
One final note: It can be difficult to approach these subjects with a loved one. You mean well, but your partner or family member may not always see it that way. When speaking with his girlfriend, Aaron should be careful not to damage the relationship. (And this means different things to different people, of course.)
Do you have any advice for Aaron? What would you do in this situation? How can he help his girlfriend take control of her finances and turn things around? Also, do you have any experience with debt consolidation and/or consumer credit counseling? If so, please share your story.
This article is about Ask the Readers, Choices, Debt, Relationships
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I agree with J Ro.
1) Do NOT marry this girl until she has cut off the strings to her family.
2) Do NOT give her $.01 until she is completely open and willing to set boundries with her family.
3) If she sinks Aaron has to give tough love and let her sink. Do not help or let her borrow until boundries are set and she is willing to limit her giving money to family.
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Run, Aaron, run!!!
When she is ready, Dave Ramsey’s Financial Peace University will be helpful.
She hasn’t asked for help. She won’t tell you exactly how bad things are…Run, Aaron, run.
Before you run, or even if you decide to ignore my advice and stay, make sure she gets her name off the credit card account and even better, closes it, so her dad can’t use it again once the account is back in good standing.
If you stay, she will have to chose between you and her family and that’s never a good thing in a relationship.
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WOW there’s a lot of projection going on.
Aaron’s gf is not your ex people!
There’s nothing in this question to suggest that Aaron’s gf wants him to pay her loans or support her.
And there doesn’t seem to be anything saying that she’s wouldn’t be willing to get her finances in order with some emotional support and a little boyfriend legwork.
Have some compassion people.
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Folks, deadbeats don’t read blogs. First and foremost, they don’t pay their bills, which means they don’t have internet access. Second, even if they can scam their way onto the net, they won’t read blogs. Mostly, they’ll just watch free porn. Until they get caught. In the library. Oops.
Bozo
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I like how some people here seem to automatically lay all the blame on the girlfriend. First, the girl did something common in family life. She co-signed for her father. Many people would never think their father would default on the payments. Further, many people are not educated enough to know that co-signing means guaranteeing a debt. Second, how old is this girl? Young people typically learn the hard way to control their finances. Often it is because their parents did everything for them and they really didn’t learn how to do it properly. My point is I think all the comments about the girl’s irresponsibility are uninformed and possibly misplaced.
As far as debt consolidation goes it is a bad idea almost 99 percent of the time. The companies work something like this: they come up with a payment you can effort a month. You pay that payment to them. The first several payments go to them as a fee. Afterwards, the money goes into an account that eventually the somewhat reputable companies will use to try and settle the debt. Meanwhile, the companies tell you to stop paying the creditors and stop talking to them. While this is going on your credit is being hit from late payments. Further, many creditors get sick of you ignoring them. Consequently, some sue you. Debt consolidation has no force of law because the companies have no authority to force a settlement. Moreover, you can do the same thing yourself. Stop paying, save some money, and eventually the creditors will likely make you a deal to settle.
Debt counseling companies like Greenpath are more legitimate. Further, companies like Greenpath will see if it is even feasible to try and pay the debt back or if you should be looking at options like Bankruptcy.
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Not only is debt consolidation rarely the smartest financial move, mathematically speaking at least, but a simple debt tracking form can demystify the management of complex debt accounts.
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The girlfriend isn’t here asking for advice, Aaron is. He can’t fix her or change her, he can only decide if he wants to be with her the way things are now. Until she is ready to make changes, he can’t help her. He can only help himself.
She made choices, and now she has to live with the consequences of those choices. She may be young and foolish instead of irresponsible, but there are still consequences, and she still has to make the choice to deal with them appropriately. Or not. Her choice, not his.
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I’ll admit that I only read through about half of the comments, but I have to say I’m disappointed. This guy didn’t ask this question for anyone to pry into his relationship. Telling him to get out of the relationship does nothing for him, his girlfriend, her family, or her debt problem.
When I first got together with my boyfriend, HE was the one who realized I had a major spending issue. I was spending more than I made and 8k in credit card debt at 20. If he had taken your advice and ran away from our relationship, I never would’ve learned to break the cycle of credit card (ab)use and would never be debt free.
He and I used a CCC service and got out of a combined $12,000 in credit card debt in 2.5 years with both of us in school full time and making less than (combined) $35,000.
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boy this generated a lot of responses!
My thoughts on reading this were
1. does she want your help? If she’s not willing to disclose fully then it doesn’t sound like it
2. If she feels she must take care of her family she isn’t going to get out – because no matter how she changes her spending and bill paying behavior she will still hurt her own situation to help out theirs – and what a mess her family seems like – ugh
If it were my friend asking I’d probably tell them it didn’t give me a good feeling about a future for their relationship!!!
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Aaron,
I was in your girlfriend’s position (well… a little different, but similar enough) and my boyfriend was there for me and really helped pull me through, so I would applaud you for your effort.
Here’s the order of her getting into financial shape:
1) stop racking up debt. Until she can stop adding to her balance each month she won’t be able to move forward.
2) Disclose her situation to you, preferrably with her credit report in hand. If you two are going to move forwad in your relationship (and i”M assuming you do) there needs to be complete transparancy. Show her your credit report too.
3) *If she wants* help her to make a payment plan for her debts and set up a reasonable spending plan… I’m thinking TMM and All Your Worth might be useful here. When my boyfriend helped me with this it was really hard to accept his help, there was a lot of bruised ego and arguing and tears, but eventually we made it through, so please be as patient and understanding as you are capable of.
4) You can be both helpful and non-judgemental, work on walking that line. Guilt trips and judgements will only make her feel worse. A fair amount of her debt is probably already shame spending, so try not to add to it.
I hope that is helpful, good luck Aaron.
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No where did he say “my GF wants advice or help”. If she hasn’t asked then don’t offer. Have learned the hard way with step-son who sounds alot like GF. Hate to sound harsh, but get out now. Sounds like her family puts the FUN in dysfunctional. Her ties to family will outweigh any well-meaning solid advice you can give.
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I would have to say neither…just stop buying things that you can not afford. You have got to go to Youtube and check out that SNL skit about not buying things unless you have the cash to do so…very funny stuff, but great truth to it!
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Advice for Aaron? If he were my son, I’d say “Find the exit, open the door, and RUN, don’t walk, through it.” There’s something mighty scary about a family situation where a father would ask his child to cosign on a debt at all, and then, far worse, welch on it. What’s the young woman learning from him? And even if she starts to manage her own finances responsibly, how will this bunch continue to affect her life into the future?
But if love has gone blind at the garden gate, then they should be very wary of debt consolidation and credit counseling services. Many that advertise themselves as nonprofits are not — I almost went to work for one such outfit that proposed to pay me a six-figure salary as an educational director. Not-for-profit counseling groups don’t pay people like that. If advice needs to be had, try to get it through a state agency, a social service organization, or even through community college evening classes.
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I think the best way to help people is to live a positive conscious life by example..
So my theory would be that she would self correct if she sees that he has his stuff under control. I would offer the suggestion once, and say if she ever wanted assistance that she should ask, but that I wouldn’t bring it up again.
And then I’d drop it. If it was such a big deal for me that my partner had financial problems, I would look long and hard at the relationship- and see if her behavior wasn’t self-correcting if it would be a beneficial relationship into the future.
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I think the best way to help people is to live a positive conscious life by example..
So my theory would be that she would self correct if she sees that he has his stuff under control. I would offer the suggestion once, and say if she ever wanted assistance that she should ask, but that I wouldn’t bring it up again.
And then I’d drop it. If it was such a big deal for me that my partner had financial problems, I would look long and hard at the relationship- and see if her behavior wasn’t self-correcting if it would be a beneficial relationship into the future.
P.S. – Sorry, forgot to tell you great post!
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The biggest problem here may be that she is tied into other people.
Even if she adjusts her own spending and fixes things– she still has the other people to contend with . . .
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The biggest issue here is not how she’s going to pay off the debt, but rather:
- why her boyfriend asking instead of her
- what are the cultural issues at play which are leading her to take on other people’s debt
If these two things don’t change there isn’t much that can be done. I bet one of the things he loves about her is her generous nature and strong family ties. And I’m willing to bet that helping family with money is something she feels she HAS to do and doesn’t want to change, deep down.
I think therapy around these issues is in order, if she is willing to confront them.
So, what should the boyfriend do about it? Not much. It’s not really his business and he needs to keep his money separate from hers.
What he can tell her is how her financial stress is impacting their relationship. If it’s difficult for him to deal with her “foolish” spending choices and “helping out” her family, that’s legitimate. He needs to address those issues with her and see how she responds. But it can’t be done in an accusatory way. Here’s an example of the pattern he might try to use when broaching the subject with her:
1. Ask her if it’s a good time to talk about something difficult. If not, schedule it.
2. State something good about her spending and financial situation – her generosity, her strong family connection, acknowledgment that the problem spending isn’t all hers, and show genuine respect and love.
3. Tell her that her financial stress is difficult for you to deal with and that you’d like to help her get out of the financial mess she’s in.
4. Hopefully she’ll be receptive and interested. If she’s not you’ll need to back off now.
5. If she’s receptive to the idea, you can take some time (or plan some time) to help her with expense tracking, a budget, and debt pay-down strategy.
6. If things are still going well you can broach the spending patterns she has. Think of the standard advice in case of plane crash – put the mask on yourself before helping anyone else. She’s going to need to set some limits with her family members and get herself in shape before she’ll be able to help them more. This is really hard for people with these patterns and she may need a lot of support. You can work out together what form that support should take, as she’s likely to feel threatened, belittled, or torn. She’s also likely to encounter a lot of negative family pressure when she does start saying no to them. Working out a plan ahead of time for how she can handle requests or perceived needs is going to be really important. The help of a therapist would be great, if she is open to that.
7. Finally, no matter how willing or unwilling she is to accept the help you can offer, you need to work on your own ability to let her make her own mistakes. This part is very hard, but worth it. If you feel she makes mistakes you can not live with, or you can’t handle the stress her mistakes bring to your relationship, you might need to set clear limits around your finances as well as what you talk about together.
As for consumer credit counseling vs debt consolidation, I’ve done each at one point or another – Consumer Credit Counseling service worked for me but didn’t give me anything I couldn’t have done myself. However, enrolling with them and using their counseling can help you get a grip on the reality of the situation and help you put together a disciplined plan to pay it off.
Debt consolidation can be a good thing – but I’d be very wary of the debt consolidation companies. Instead I’d ask at my credit union and credit companies. Combining debt and lowering the interest rate is a good thing. If there is an asset the debt can be tied to (house, car), that might be one way to get a lower rate, however it’s a dangerous course to take because if she misses payments or can’t make the full payment the lender can take whatever was securing the debt.
The other problem with debt consolidation is that if she really can’t afford the payments there is now just big loan to default on. If she has many smaller loans she can knock them off one by one.
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Aaron’s never going to kill this weed unless he gets out all the roots. Dad and sister are probably not going to change, so if he doesn’t think his girlfriend will ever be able to say no to them, I’d reconsider the seriousness of the relationship. Even if Aaron and his girlfriend keep their finances separate when they cohabitate/marry, he’s going to end up paying all their living expenses since she’ll always be broke.
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Boy, it’s pleasant to see the misogynists rear their head on this site of an evening! Aaron nowhere said that his girlfriend was asking him for money (or that her father was indulging her–sounds like the opposite, actually), but a bunch of people sure exposed themselves by assuming that she did or must be about to.
I’m with the people who said that the problem here is that the gf has not asked for help. This is not a problem because it indicates she doesn’t want help and thus is somehow (at what is clearly a pretty young age) thus beyond all help, clearly unable to change, doomed to be forever bankrupt and/or bringing down her husband with her golddigging ways, etc. It’s because Aaron appears to think it’s his business to control such a major part of his gf’s life before they have made any permanent commitment to each other. Until she asks for help, not only is it unlikely to do her any good, but it’s not Aaron’s place to try to give it. If she isn’t even willing to give him all the facts, she isn’t willing to let him work out her finances. If he models a fiscally responsible life for her but is respectful of her independence, if she’s at all smart she’ll see that he’s living in a way that brings a lot more peace of mind than the way of constant debt and eventually look to turn things around.
(Which is not to say that it’d be a wise move to marry her before she starts changing course, but if she wants him to marry her, at that point it’s fair to raise the issue.)
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boundaries.
aaron has poor boundaries by becoming concerned with a problem that isn’t his.
my therapist taught me to “literally sit on my hands, bite my tongue, watch and do nothing, then make good decisions for myself. everytime i wanted to leap in there and help, i was to sit on my hands and bite my tongue until the fit passed.” my therapist also taught me to “stay on my own floor tile’. I came from a family with no boundaries so had to be taught as an adult.
the girlfriend has no boundaries, period.
the girlfriend’s problem is a big as mount everest. I say “Run, Aaron, Run”.
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I agree with others that just jumping into debt consolidation is not going to solve this girl’s issues.
She has to make changes all around to get herself rolling on a path to get out of debt.
Number one is stop giving the unemployed sister money for bills! She should not continue to dig herself deeper while the sis gets a free ride. There are resources out there for the sis to utilize. If the GF wants to be compassionate then do little things like cook a meal now & then for the sis & family.
I think the situation with Dad could be a lost cause, she may get nothing from him, so pay what she can, or work a deal with the creditor & chalk it up to lesson learned. Oh and make sure that account is closed if it is not already.
Basically Aaron needs to tread lightly, because he is probably not going to change the family dynamics here.
He should not enable the situation by forking over any money.
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My husband and I used Consumer Credit Counseling (By Design, a non profit org here in CA) when we couldn’t keep up with the minimum payments on our cards. We are now completely debt free. It took a few years. Our credit scores definitely took a hit because we had to close accounts we’d had open for a long time and a bunch of closed credit accounts doesn’t score well. Our scores weren’t horrible, though, coming off the plan, and they’ve managed to recover a bit more. We felt it was a small price to pay in light of being debt free and the peace of mind being on the plan gave us. The scores will continue to improve, given time.
We didn’t want to be in debt for years and years, which we would have been if we hadn’t gone with CCCS. Now, my husband has been laid off, but we are surviving okay on his UI, freelance work and a little help from our emergency fund, which we would NOT be if we were still paying down that awful debt. And we would be, if we hadn’t used CCCS. So it’s been for the best.
It worked great for us. Mileage varies, I know.
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The first thing that came to mind when I read this is that SHE has to want to fix her problems. He should broach the subject with her, but if he pushes, then it will likely drive a wedge between them. He should encourage her to open up to him (to reveal the full picture), and he should offer his support (emotional), but other than that, you can’t change a person.
I’m very wary of these debt consolidation/credit counselling services. I guess my take on it is if you made the mess, you get out of it. There’s no such thing as a free lunch. I’m paying off my debt the old fashioned way. I’ve heard many horror stories about these “get out of debt easier” services.
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My xbf had some serious financial problems and was hesitant to disclose them. It wasn’t because he didn’t want help. It was because he was ashamed of being in that situation at his age (mid 30s).
I spent a lot of time reasurring him and sharing my own spending decisions/investment/debt reduction plans with him as a way to teach him a more productive decision making process. Eventually he realized that I was not going to judge him and opened up.
Maybe Aaron’s girlfriend is like my xbf and is just afraid to admit how “stupid” she’s been or, in her case, “weak” and unable to say no to her family. Encouragement, emotional support and just someone to help her sort things out logically might be most of what she needs. She might also need someone to show her a different way to look at her finances.
I sat with my xbf when he called his credit card companies and negotiated a lower rate. They closed the account, dropped the rate from 24% to 2.5% (if I remember correctly) and put him on a 5 year repayment plan. Then we sat down and listed all his expenses. He was the one to decide what was going to stay and what was going to go. He got into the habit of calling me for advice when he was thinking about buying something new. He really just needed to learn new ways of looking at his finances and making sound decisions. He also needed frequent reassurance that none of his friends expected him to live their lifestyle when he was making 1/3 of their salary!
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I want to offer my thoughts on an experience I had with a CCCS. I had racked up over $14,000 of credit card debt on three cards by the time I graduated college. I was making $8.50 an hour working part time and was doing all I could to make the minimum payments and keep up with rent. Eventually, the inevitable happened and I couldn’t make my payments one month. With a month of late fees and the automatic 30+% APR after missing the payments my minimum payments topped $1000 each and my total debt topped $18,000. I decided I had no option but to consult a CCCS service.
At first a couple of the services that advertise the “secrets the credit card companies don’t want you to know.” After talking to them and them telling me that I had to have at least 3 months of late payments before they would consider me and promising to cut my amounts owed in half. Fortunately I had enough sense to smell a rat. However, this got me to look at legitimate CCCS companies. I talked with several companies and read as many reviews as possible. I decided to go with a company called American Debt Solutions.
I had already tried to negotiate with the credit card companies but to no avail. American Debt Solutions reviewed my income and debts and helped me work out a budget. I was blessed to have gone from a part time $8.50 job to a full time $40,000 job after I graduated college. On the financial down side, I also got married and went from splitting an apartment with a friend to being the sole provider for both my wife and me (she was in college still). My payment was $450 a month, $415 to the credit card companies and $35 as an administrative fee.
Eventually I got serious about paying off the debt (with the help of Dave Ramsey) and up my payoff amounts. I paid off this debt within two years. After coming out of the service my FICO score went from the low 500s to 650, which is not great but in no way ruined my credit. The bulk of the damage to my score came from the late payments and maxed out cards before I entered the service. The financial service was very helpful and always made payments on time. Although I disliked having to pay an extra $35 for administrative fee for a “non profit” but ultimately it was well worth it.
I would highly recommend American Debt Solutions for anyone facing the self-inflicted Stupid Tax like I had to pay.
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We used Consumer Credit Counseling service when my husband lost his job. They were wonderful and we were able to not only continue to pay our bills, but pay off our debt. It has been 13 years and we have not carried a credit card balance since we got out of the hole we were in.
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I don’t want to sound spammy, but I came across your post today, and I think that debt consolidation is the right choice for people with more than $10,000 in unsecured debt. Debt settlement or debt consolidation can really reduce the total amount owed and remove the stress for people that are having trouble making their payments. Sometimes you can take a hit to your credit score when you consolidate, but if you can take a load off your shoulders and begin to make your payments, you have a real chance of getting out of debt for good.
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Debt consolidation like mentionned is good and bad. Before i could not manage my credit cards, loans, etc… anymore just by making minimum payments i decided to conlidate.
I did not go with a debt consolidation agency at all. Not what i recommend neither. What i did in my case was open a consolidation loan and transfer everything in there and cut out the plastic. Strict repayment plan on my behalf not the banks, within 5 years to repay ASAP.
It was successfull. The only downfall was that it was not looking good on my record at that particular bank because i had a consolidation debt but any other banks saw this as a loan. Especially with the good rates right now, i would take advantage of this, we all know how credit cards companies play the violon and stomps you with their APR rates. If you qualify, go get a consolidation loan from a bank.
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