Credit Card Debt Counseling Options Becoming More Limited

Posted On: July 7, 2005

Rising minimum credit card payments, reduced credit and debt consolidation options and the new bankruptcy law will cause problems for many consumers, according to Michael T. Killian of credit.about.com.  Credit and debt management are becoming key issues for consumers.  Beginning credit management early is the key to success according to Killian.

Jim Young of Accelerated Debt Consolidation believes there is no secret or mystery to debt repayment.   The trick in debt counseling is for the agency to set up a program for you and to follow through.  This route will have the least effect on your credit file.   What has become evident is the importance of getting into a program at the first sign of trouble.  A benefit of early debt management counseling is that consumers might be able to lock in a minimum payment before the lender adds an increase.

According to Mr. Young:

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“If we get them locked in now at the 2 to 2.5% credit counseling minimums, it will not change when the higher payments go into effect.”

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Mr. Young continues:

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“If you look at what the creditors have been doing over the past 3 years [minimum payment increases] it stands to reason.  4 years ago rates for high risk consumers that had been late, over limit, maxed out etc. Were 19.9% to 22.9%.   Now the high risk rates are from 24.9% to as high as 31.9%.  The creditors have to raise the payments or the consumer will never pay them off at 2%.

“In the year 2000 we would see the same scenarios over and over again.  Citibank, Chase, Fleet, B of A, Direct Merchants, and others usually extended a limit of $5000 each to most average consumers with decent credit.  Then MBNA and First USA let them go to the $15000 to $20,000 range.Most average consumers that considered themselves “maxed out” would come into the program with $20,000 to $30,000 at 19.9% to 22.9% and we could set them up on the program with a monthly payment of $450 to $625 per month and get the average interest down to around 8% overall.

Now those same people with the same income levels come in with $50,000 to $80,000 at 24.9% to 30% with counseling payment requirements of $1200 to $1800.  It is totally out of control.  What we will see is higher payment requirements when the consumers are making their payments directly to the creditors and slight reductions when they enter credit counseling.”

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In short, if you are considering seeking credit counseling or debt management services, then please don’t delay. Recent changes in the credit card industry do not bode well for consumers. As always, though, please use caution when choosing a credit counseling or debt management firm.

We welcome your comments about credit card debt in our popular credit forum!

Partial content and quotes from this article courtesy of credit.about.com.