[MUSIC] 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. [MUSIC]