Dear Debt Adviser,

We need to consolidate our credit card debt. Do you know any trustworthy agencies that can help? Our payments are so high that we're struggling to pay down more than the interest. What would be the smart route to take? We're both nurses with two kids and a house for one year. Please help!

Sincerely, 

-- John

Dear John, You can trust a nonprofit credit-counseling agency that is a member of either the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. Both of these organizations have consumer protection standards that their member agencies must follow. When you contact an agency that belongs to one of these national organizations, you'll speak to a certified credit counselor who will help you assess your situation. The counselor can make recommendations on how to move forward, based on your goals.

From the brief information you have included, it appears that you may solve your problem with some budgeting and negotiation tips or with a debt management plan. Here's a quick overview of what to expect.

  • Budgeting. Because you both have well-paying jobs, this may be your best solution. Your counselor will help you prepare an in-depth spending plan. Few people can account for where all of their income goes. Once you complete this exercise, you'll know, and you'll be able to reallocate 10% to 25% of your income to debt payments.
  • Negotiation. Many creditors offer programs that can lower your debt payments and interest charges. Please note, however, that some creditors may not be willing to work with you because your payments are up-to-date.
  • Debt management plan. A debt management plan also can lower your debt payments with lower interest rates over a repayment period of three to five years. You should be charged no more than a $75 fee to establish the plan. It shouldn't cost more than $50 per month to maintain the program. Most agencies will charge less than these stated fees.

With a debt management plan, you'll make one monthly payment to the credit-counseling agency, and it will use that to pay your creditors. You will continue to receive monthly statements from your creditors indicating your payment and your balance. When you enter into a plan like this, your creditors will require that your accounts be closed. Most creditors will report to the credit bureaus that the accounts are part of a debt management plan. This will not affect your credit score, though some lenders view these accounts negatively.

Your credit rating may take a slight hit with your accounts on a debt management plan. But the positives of paying off your debt should outweigh that possibility. Plus, once you finish, the debt management plan notation will disappear from your credit report immediately.

Good luck!

 

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