Skip to main content

Credit Card Payoff and Debt Relief Companies

Wondering where to turn for help with managing debt? Adviser Michelle Petrowski has some suggestions.

By Michelle Petrowski, CFP

Credit card debt can amass for a variety of reasons, and for most it can be a source of shame and embarrassment. It’s definitely not something many folks would be eager to discuss with their financial advisor, friends, or family. But when you do, watch out! Everyone has great advice, once asked, and sometimes the advice never seems to end, even when it’s not solicited. You’ll hear from those who used a personal loan, a debt consolidation loan, a HELOC on their home, balance transfers to 0% credit cards, a 401K loan, a snowball method debt paydown plan, and maybe even a debt relief company, to name a few.

Michelle Petrowski Buonincontri

Michelle Petrowski

Not-for-profit Debt Management Credit Counseling Companies

There are many options, with pros and cons. The one I really like, for many reasons, is the debt management company run by a nonprofit consumer credit counseling agency. I speak from personal experience. Ten years ago, because of my divorce, I had accrued significant credit card debt for attorney fees and divorce expenses. This was the route I chose.

Now that’s embarrassing to say. But I had depleted all my savings and this was the best option for me and my family. I didn’t want to touch my retirement accounts.

If you’re not familiar with them, a debt management company works with your creditors to restructure your debt by creating a debt management plan (DMP) tailored to your unique situation to help you payoff the debt quickly. For a fee, these companies negotiate lower interest rates with your creditors and roll your unsecured debts into a single monthly payment. This simplifies the repayment process without you having to go delinquent, without a derogatory event on your credit report (unless of course you are already behind on payments), and you know exactly when the debt will be paid off. It can be a stress reliever for sure: one payment, with one end-date, and a lower interest rate.

The Impact?

Yes, you must be willing to close these accounts, but no one looking at your credit report knows that you are enrolled in one of these programs. Be aware that credit scoring models do use various credit age-related metrics when calculating your score, including the average age of your accounts, the age of your oldest account, and the length of time it's been since you opened an account. So, closing accounts will impact the length of history of your accounts, which could potentially impact your score if you close an account that has been open for a long time. But for me, in my situation, the benefit outweighed the small impact it had to my score.

What’s a For-Profit Debt Relief Company?

There are other debt relief companies that appear to do a similar process, but they are “for profit.” They almost always require that you go delinquent on your accounts (and for many months in some cases) so they can negotiate a lower interest rate on your behalf and their fees are usually higher – remember, they are “for profit.” Additionally, “going delinquent” on your obligations to get into one of these programs will definitely have a negative impact on your score, much greater than closing a current account.

Finding an Agency

Looking for a debt management company? You can try the Financial Counseling Association of America, (800) 450-1794, or the National Foundation for Credit Counseling, (800) 388-2227. You may also want to check out any debt relief service with your state attorney general and local consumer protection agency before deciding to do business with them.

Lastly, I personally don’t know anything about these companies named in these articles, but Forbes and NerdWallet recently had articles that could provide some additional insight and direction for any research into this topic, as well as the Federal Trade Commission’s (FTC) article “Coping with Debt.”

Remember, do your homework. Everyone’s situation is different! What worked for me, your neighbor, or a family member may not make sense for you.

About the author: Michelle Petrowski, CFP®, CDFA®

Michelle Petrowski, CFP®, CDFA® (formerly Michelle Buonincontri), is a financial planner, wealth manager, divorce financial strategist, and personal finance coach. She is the founder of Being in Abundance and Being Mindful in Divorce, as well as an avid volunteer at Savvy Ladies in NY and Fresh Start Women's Foundation in Phoenix, and has worked closely with the Arizona U.S. Service Members. Michelle has been featured in CNBC, Forbes, MarketWatch, Investment News, Yahoo Finance and other media outlets. You can email her at Michelle@BeinginAbundance.com or schedule a Q&A call with her here.

You might also like:

Ask the Hammer: Should I Focus on Paying Off a Parent Plus Loan?

How Debt Affects Retirement

Ask the Hammer: What's the Best Way to Handle a Loan to a Family Member?

How to Effectively Pay Down Debt

Retirement Remix: Chapter 11 - Debt Management