Smart Money:

[cereta]

DEAR BRUCE: My question is regarding the companies that help lower the interest rates and payments on your credit cards. When you sign up for the program, the one negative is that they close your credit cards so you can't use them while you pay them off. I understand that, but will my credit score drop when they close my credit cards, and how much would my score drop? -- George

DEAR GEORGE: You wrote that one negative is that a debt settlement company will close off your credit card, which is true in some cases, but certainly not in all. For some people, even though they had a problem, the necessity for having access to credit is overwhelming.

Nonetheless, I wouldn't worry about your credit score dropping when the cards are closed. How much the score will drop is not relevant at this point. If you are getting help to negotiate with credit card companies, your credit is already in lousy shape and the only way to fix it is to get it completely cleaned up. Concentrate on that. Once you get your credit established again by paying all your bills, you'll be surprised how fast you can rebuild a credit score, which will then be attractive to many lenders.

Comments

[shirou]

I'm glad programs like that exist. And honestly, I'm a little amazed they're so effective. Are you in the US? The policy environment here generally puts all the power in the hands of the more economically advantaged--the lender, landlord, etc--so I'm pleased but surprised to learn that debt relief programs can succeed in getting credit card companies to negotiate.

[cereta]

I'm in the US, yes. I think the fact that so much power is in the hands of the lenders is exactly why these programs exist: they put an equally large company, as well as a law firm, behind the lender. I've really been amazed at what they've accomplished for us. Sometimes I feel a little guilty about the settlements, but then I remember that (a) the alternative would have been bankruptcy,* and (b) we have doubtless paid what we owe in all those months of making minimum payments (which are mostly interest).

*No judgment on those who've had to take that route.