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Hi there, I'm Michael Bovee with Consumer Recovery Network.
Thanks for tuning in to our YouTube channel, DebtBytes.
Today I'm gonna continue on with a video in our Pros and
Cons series and
talk about consolidating your bills, or debt consolidation,
using a non-profit credit counseling agency.
Oftentimes, these are called debt management plans.
So first off, before I go into some of the pros,
the credit counseling industry is pretty large.
There's over a hundred companies,
a lot of them national.
Credit counseling is probably the most popular
non-confrontational way to resolve your bills.
If you call your bank and said, hey look,
I don't know if I'm gonna be able to afford my payment
next month, things have changed, I've got less hours,
banks actually refer you to these agencies.
They'll give you a toll-free number and
you'll be kinda randomly pushed out to one to consult with.
It's free, so it's worth a call to do and
see if you can benefit from some of the following pros.
The first benefit of a credit counseling debt management plan,
or consolidating through one of them, is that you get a lower
monthly payment from interest rate concessions.
When you're on a phone, doing a consultation with
a certified counselor, they're gonna be inputting information,
asking you income and
expense questions, so be prepared for that.
And they'll input that in their computer, and
the computer's already preset with some information
from the creditors that you have that participate in these plans.
That is going to spit back to them what lower monthly payment
they'll accept.
So you can actually, legitimately,
you could get an exact to the penny quote in one phone call,
as to what that monthly payment will be.
Another benefit is that you only have one monthly payment.
Let's say you have five accounts that are enrolled into this bill
consolidation.
You now add up what they reduced it down to in all five cases,
all five accounts.
And you send that one amount to the credit counseling agency.
And then they split it off and send it out to your creditors
that are participating in the consolidation.
So, that can make ease of and
simplicity of managing your bills.
So that's a benefit.
You have a fixed payoff time.
These programs, the consolidation programs through
the non-profit agencies are regulated, are regulated,
heavily regulated.
One of those regulations is that their plans cannot last more
than 60 months.
So, you have a light at the end of the tunnel and
it's five years long, that's it.
When you look at your credit card statements, for
example today, and it will tell you that, hey, if you continue
to make minimum payments on this balance that's owed,
you'll be paying on this account for 22 years.
Literally, I mean it can take that long.
That's a [LAUGH] much longer tunnel.
So, bill consolidation allows you to shorten that tunnel,
that time frame for you to get out of and
be free from credit card debt for example.
Credit counselling allows you to preserve your credit, okay?
So much like I talked about in the Pros and
Cons video, debt consolidation loans,
debt consolidation through the non-profits, through, I guess,
not a loan just lowering your interest rates through
a pre-arranged plan, it doesn't impair your credit score, right?
It's not gonna drop your score, and
it's gonna preserve your credit.
There are some cons to this aspect, right?
So it doesn't hurt your credit on a forward-looking basis.
It actually can reage your accounts.
But, I'll get to the cons in a moment,
just realize that unlike bankruptcy Chapter 7,
Chapter 13, or falling behind so that you can later negotiate
lower balance payoffs with your creditors and debt collectors.
Credit counselling,
this form of consolidation doesn't impair your credit.
You can eliminate fees.
Okay, so assume for
a moment that you've got those five accounts and
you're late on three of them to the tune of 60 days.
You've got over-the-limit fees, maybe,
because you were already maxed out.
And the first month you missed a payment.
You had a late payment fee that put you over the limit somehow.
And so now you've got a late payment fee and
an over-the-limit fee, and now two months worth.
A lot of times when you work through one of the non-profit
agencies to consolidate your bills,
creditors that participate in these plans will waive
those late payment penalties, all those fees and everything.
So, there's a benefit there.
And then of course, when I said re-age a moment ago,
this is what I meant by that.
If you've missed two payments to say Citibank and
it's showing on your credit report as 60 late,
that doesn't necessarily go away.
That's not what I'm saying, but it is re-aged to the point that
your very first payment from the credit counseling agency that's
pushed out to Citibank is part of this agreement.
That will stop, even though you didn't make up
you didn't make up those other two payments that you missed,
it's not gonna report as 60 or 30 days late in perpetuity.
It reages it just with that one payment to the counselor,
not making up the arrears.
So in other words,
it's not impairing your credit on going basis,
which is actually pretty important.
Okay, and one of the other benefits of working with one of
the non-profits is that their fees are pretty reasonable, or
even nonexistent.
They get their non-profit status from
the Internal Revenue Service, from the IRS.
So they don't pay taxes on their income, their revenue, and
with that, it's a quid pro quo.
They have to do something to meet that standard
to be a non-profit with the IRS.
And in this industry, the debt relief industry,
that means providing education, free resources to consumers.
They have to consult with you for free.
So when I said, call that toll free number and
press one to talk with a counselor,
it's always free because it has to be free,
because they're a non-profit.
So, the price is right for a lot of people,
if you can't afford to pay but
you're on that margin where you can still afford your bills.
In some instances there are no fees.
And even the fees they do charge are typically much less than
the other debt relief options, like Debts Up.
One of the other benefits of working through one of
the non-profits and consolidating through them
is that there's an agreement there, right?
Everybody in the plan agrees.
As opposed to some of the other alternatives that if you can
afford credit counseling, you can avoid having to do debt
settlement, which means having to deal with tons and tons of
debt collectors, debt collection calls, debt collection notices.
And all of the stress and what not that comes along with that.
If credit counseling or
this form of consolidation makes sense for you, it's really cool
that you don't have to deal with some of those stresses.
Couple of other benefits of the consolidators,
the non-profits out there, that may not necessarily be related
to debt consolidation, but I should bring them up is that
they do some counseling as it revolves around student loans.
They do provide counseling for pre-purchase home buying.
And that they're requirement working through a non-profit
online, or calling that hotline, same thing,
if you're filing bankruptcy.
You can talk to a councilor and meet your requirements for
the bankruptcy trustee to accomplish your pre and
post-bankruptcy counseling.
So, most of the non-profits have either offered that or
can give you access to that.
I wanna move on to the cons,
some of the draw backs to debt consolidation or
bill consolidation through the counselors.
When you call and
talk to a counselor, you have to qualify, kinda like what I
talked about in debt consolidation loans pro cons.
You have to qualify, you have to a credit score,
debt-to-income ratio so on and so forth.
Here it's kinda the same, only it's not a loan, right?
So, it doesn't matter about your credit score, not a bit.
It doesn't matter about necessarily your debt-to-income
per se, it matters about your monthly cash flow.
And here's what I mean.
You cannot qualify for credit counseling
consolidation plan if you do not have enough money to meet your
minimum payments on all of your debts, okay?
Your banks are not going to want to enroll you
in something where,
when they do that exercise with you over the phone,
it shows that you can't afford to pay even the minimum
that they can reduce it down to, you're not gonna qualify.
So, there's a quantification.
Actually I gotta tell you this, from my perspective,
being a debt relief expert and doing and working with consumers
for decades now, I kind of think it's a plus.
So credit counseling fits in a box, right?
You either can afford it or you can't.
And if you can't, you can now eliminate that as an option.
And it helps you move forward in kind of a process of elimination
that I'm a huge fan of,
starting with talking to a credit counselor.
But if you can't qualify,
talking a chapter seven bankruptcy attorney.
And if you can't qualify, then talk about settlement and
compare that with a chapter 13 bankruptcy.
Some might consider that a con, I kinda like it.
Okay, so, the biggest, in my opinion,
drawback to credit counselling or
bill consolidation historically is that it's inflexible, okay?
It's just the same problem that happens in a bankruptcy
of a chapter 13 forced repayment plan that the court oversees,
this is no different.
If you miss a payment you could easily lose the benefits of
the whole plan, okay?
So it completely goes off the rails.
And it's not something where you can miss a payment and
go, my bad.
Or call in advance in preparation of not being able
to make a payment and say, I'm not gonna be able to do it.
I've tried everything.
The payment's gonna be drafted next week.
It's not gonna be enough, I won't have it in the account.
That's it, it's over.
A lot of the times,
it's just not gonna be preserved at that point.
So you lose the interest rate benefit.
You're back to where you began.
And my biggest problem with that is that you committed whatever
amount of time from the time you enrolled in it until that
incident where you couldn't continue on.
Let's say it was six months and your monthly payment was $600.
You wasted $3600 on a solution that didn't work, right?
So the inflexibility is the by far and
away, biggest drawback or con to bill consolidation.
You want a dependable source of income in order to enroll in one
of these plans.
And if you don't have a dependable source of income and
you don't have anything that you can fall back on like savings,
it's probably not a good idea to enroll in one.
Doing bill consolidation through the non-profits,
one of the pros is that it doesn't hurt your credit, but
here's the other part of this, okay?
It doesn't show up as a late pay or anything like that to
drop your credit score, but the accounts get closed.
So when you enroll these five accounts,
we're following that example, all five of them,
let's say they're credit cards, they're closed.
And that means that whatever history, for however how long
you had those cards, let's say all of them have been opened, 8,
10, 12, 14, and 16 years, okay?
You're losing that depth of credit history.
Maybe that's too aggressive.
Maybe they've been opened for three, four, five, six,
seven years.
So, when you lose these years of debth in your credit,
it actually will impair you on a forward going basis because
you'll be missing that.
Some of your credit history in that depth actually helps factor
your score.
It's not a huge part.
It's not a huge element, but
it's something that I should point out that you lose.
Oftentimes we think about, okay, let me get the lowest interest
rate one cuz it still has a balance that I'm trying to pay
off, that's the one I'll keep out.
It might be a better idea to keep that 7 year or
18 year old account out of the plan too.
One other aspect of the fact that your enrolled in
a consolidation plan is that the accounts that are enrolled
often will show up on your credit report as part of a DMP.
And that means other creditors, potential lenders,
that you might go apply for credit through, can see that and
go, no.
They may not lend you, in other words,
if you just enrolled in one of these plans.
However, if you've been on it successfully,
making your payments for one to two years, you can still refi
a mortgage, often times go get a car from a car lot at some of
the best rates, cuz your score didn't suffer.
The fact that you're on these plans though might be something
that comes up in the first year or
two while you're enrolled in one.
Okay, well that kinda wraps up the basics of the pros and
cons of consolidating your bills using a non-profit
credit counselling agency.
Again, you have to really talk with one and
go through that budget counseling session.
It takes maybe 30 minutes to an hour sometimes,
but it's well worth the time invested.
One, it's free.
Two, the outcome is you wanna get an exact down to the penny
quote of what your payments can be consolidated into,
what your monthly payment can be reduced to.
And know then and compare that with what you've got going on.
If it's affordable,
if you can commit to it, it's the right thing to do.
Or, if it's just out of reach and
you can move on to other alternatives.
See you on the next video.
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