Housing and credit counseling comes in many forms. For example, several nonprofit housing and credit-counseling agencies support borrowers who are already behind or about to fall behind on their debts. In addition, the federal government provides counseling by encouraging mortgage lenders to modify loans. Success begins with facing your problems head-on and developing a plan of attack. Don't wait, and don't hide. Start now.
Best Counseling Resource
Contact the National Foundation for Credit Counseling, a nonprofit organization founded in 1951. According to its website, the NFCC assisted more than three million Americans in 2010 and has more than 800 offices in the United States and Puerto Rico. Offices are staffed with counselors who are trained in budget- and credit-management services. Initial consultations are free and confidential, and cover all types of debt, from credit cards to mortgages. Begin a consultation online or call 800-388-2227.
The NFCC: What They Will and Won't Do
The NFCC will review your budget during the first meeting and discuss your financial goals, which probably include getting out of debt. Even if you're late on your payments, call the NFCC anyway. The counselor may be able to enroll you in a debt management plan, also known as a DMP. These management plans are terrific tools for consumers who are struggling to manage debt payments. The consumer makes one monthly payment to the counseling agency, who distributes it to creditors, and the accounts are closed. In exchange, counselors are usually able to negotiate a lower interest rate, eliminate fees and arrange for the debt to be paid in full within five years. Accounts are also brought to "current" status, which improves the consumer's creditworthiness. The NFCC also offers bankruptcy counseling services but does not make or facilitate consumer loans.
HAMP Eligibility
If you're concerned about making your mortgage payment, consider the Home Affordable Modification Program, also known as HAMP. According to the federal government's Making Home Affordable website, homeowners, delinquent or not, may have their mortgage payment reduced to 31 percent of their monthly pretax income if they meet certain criteria: have a financial hardship, occupy the home as a primary residence, secured a home loan before 2009, have a payment that's more than 31 percent of pretax income, can document their ability to afford the new payment and owe less than $729,750.
According to the U.S. Department of Housing and Urban Development (HUD), those who had their loans modified successfully saw a 40 percent drop in their payments, many by $1,000 or more. If you are not eligible for HAMP, your lender may have another program to assist you. You may also need to consider a short sale.
Contact your mortgage lender directly to investigate both options.
Settlement
If you've exhausted your counseling and HAMP options, you may need to consider debt settlement. In a debt settlement plan, a consumer pays roughly 40 percent of the outstanding balance. Usually, you have to be between three and six months behind on your payments. Once you've settled, however, it's not reported as "paid in full" to your creditors. Prepare for your credit score to hit rock bottom. However, you'll be debt free.
Bankruptcy
Bankruptcy is your last resort. Many debts, such as credit card debts, can be discharged. However, your credit will be severely damaged; bankruptcies are reported for 10 years. It may affect your employment status, and it could affect your insurance premiums. However, employer-sponsored retirement plans are safe from creditors, and you may be able to keep your home and your car. Both debt settlement and bankruptcy may require the use of a professional. Be wary of settlement companies, and check the Better Business Bureau before revealing personal details.
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