Credit counseling

Question: I have, unfortunately, managed to rack up about $30,000 in credit card debt. Financially I'm okay and working to pay off the debt and not in danger of bankruptcy or anything right now. I am considering using a credit counseling service to help me negotiate a lower interest rate on some of my cards, and am wondering how it works if you have a balance on a card but close the account? How does it reflect on your credit report? Thank you, Mark, Ashburn, VA

Answer: The answer lies in a world of "sometimes," "maybe" and "not always." Fair Isaac, the 800-pound gorilla of the credit scoring industry, explicitly states that participating in credit counseling doesn't factor into your credit score. That's the right approach. Problem is, there are other credit scoring companies and it could show up elsewhere. Closing a credit card account will usually nick your credit score.

Of course, my reaction is "so what"? The real concern is getting rid of the debt, and congratulations on working so hard to pay off your credit card bill. Your credit report and your credit score will rebound with good debt habits.

One last thing: Be careful when you look for a credit counseling service. It's an area ripe with fraud, malfeasance and fly-by-night operators. The nonprofit affiliates of the National Foundation for Credit Counseling are legitimate. The quality of the service can vary, but it's a good organization and a good place to start. The United Way and a number of churches also offer honest services.

By the way, they may tell you you're doing fine on your own. But it's always good to talk to someone knowledgeable and have them review your situation and go through your options.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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