My Adventures in Credit Counseling

September 10, 2013

In my late teens and early twenties I made some poor decisions: I dated a guitar-strumming rocker with great hair who thought that maintaining a job was “too mainstream;" I got a place downtown that was way out of budget (even if the boyfriend had kept a job); I bought a new pick up and a set of Vespa’s because, hey, every girl in Colorado needs to be mountain or city ready on a dime.

Oh yes, life was good…until I got in an argument with my boss and quit my job, maxed out the credit cards, and piled on the cash advances. To no one’s surprise, the boyfriend hit the road once my bank account was completely depleted, and in picking up the pieces, I learned about the other accounts: the other credit cards, the phone bills, the Pay-Per Views, all in my name and no way to prove that I had no knowledge of them.

Now, let’s be honest here. Both directly and indirectly this situation was a result of my actions, and I’m not writing this as a sob story of what happens when pretty boys take advantage of prettier girls. I’m writing to tell you about one facet of my experience in cleaning up $13,580 of debt. It has been a catalog of lessons (I could probably write twenty blog posts about it), but one of the first I learned during court-mandated credit counseling.

What is Credit Counseling?

Credit counseling is a process where a consumer can work with a professional to organize debt and income to help decrease, and eventually eliminate debt. Typically if you’re just looking for some direction, you can go to organizations like the National Foundation for Credit Counseling  to help create a plan without leaving your living room. However, when your credit score drops from a 760 to a 380, creditors notice. When you have to go to court to resolve debt, they notice.

Part of the process of resolving large amounts of debt is to go to mandatory counseling. For me, this was an 8 hour class with about 15 other people swimming in debt for reasons I didn’t even know existed. Here are a few of them.

The Casino

Did you know? If you’re a frequent attendee, you can obtain a loan from a casino. Usually, these loans are designed for high rollers to maintain loyalty – as in, you’ll go back to that casino because you have a line of credit there.

In theory, you win big, pay the loan, and drive into the sunset. However, some people don’t know how to say no. For example, a woman I met in class. A self-proclaimed slot master, she’d been having a bad luck streak, and the casino was great about lending her money to win big.

Why it doesn’t work: If there’s any institution that keeps tabs on money better than a bank, it’s a casino. Every time you use the line of credit, you have to make a payment towards the line. In this woman’s case, there wasn’t a limit to what she could borrow, but the payments increased – so much so that she was signing her weekly paycheck over to the casino. By the time she got to class, she owed nearly $50,000.

The Floating Check

Did you know? When a check is deposited, it typically takes a bank 2-3 days to process the funds.

In theory, if you owe rent on Tuesday but don’t get paid until Friday, you could send your rent anyway and the check would process – or “float” – until Friday. An older gentleman in my class paid all of his bills this way – he said he would, “Write, write, write,” then, “hope, hope, hope.”

Why it doesn’t work:  First off, you’d have to find someone to accept a check. I took this class in 2007 – nowadays even some grocery stores won’t accept checks to avoid floaters. If a check is accepted and processes before funds are available to cover it, the check will bounce (decline). Banks don’t cover bad checks with overdraft protection because the risk is too high. The gentleman in my made floating work until he wrote too many checks and they all processed on the same day. Bad Check #1 was the largest and used up his available funds, so all of the subsequent checks bounced.

After hearing each other’s stories, we learned to budget, balance a checking account and checkbook, and to not spend more than we had. Something more, I learned that there are many ways to dig the debt hole, but ONE way to get out. Anyone in any situation can downward spiral, but we all have to take the same steps to emerge on the other side.

Whether you owe $1,000, $13,000, or $50,000, step one is the hardest part: stop whatever it is you’re doing that’s causing you to spiral. Don’t go to the casino, shred the checkbook, and cut the extra expenses (cable, etc). Build a budget and STICK TO IT. With a lot of time and hard work, any amount of debt can be abolished. We can all emerge from the Credit Crypt alive!

This post was written by Amanda Erck, a customer service representative at Colorado PERA.

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