Ask Me Anything: Christmas Clubs, Bank Sale, and Credit Counseling

Credit counseling should be a second choice to getting out of debt on your own, but better than claiming bankruptcy. Jeanette Dietl/Shutterstock

Dear Mary: Whatever happened to bank-sponsored Christmas clubs? —Ted

Dear Ted: They all but disappeared when credit cards became so popular. The new attitude was, “Why worry about it? I'll just use my credit cards and pay for it later.” Bad idea.

Good news: Christmas clubs are making a comeback (so are layaway plans). They may have a different name, such as holiday saver account, but they pretty much work the same.

With a Christmas club, you sign up to have a small amount automatically deposited from your paycheck into your Christmas account each payday. It’s a smart, painless way to save for Christmas shopping.

Check around to see if Christmas clubs are making a comeback in your area, or look online. SmartyPig.com is where I'd set up a Christmas savings account if I were you. Its goal-planning system not only helps you map out short-term purchases such as gifts or new running shoes, but also long-term savings goals such as a trip to Italy or a car down payment. SmartyPig makes it fun and exciting to save.

Not all bank or credit union holiday saver plans pay interest, by the way. Even if yours doesn’t (at best, it will be in the 0.5 to 0.7 percent range) it’s better than paying credit card interest and creating a new pile of debt because you failed to save cash for holiday spending.

Dear Mary: I just found out that our bank is up for sale and I’m trying to decide what to do with our savings account. What bank would you recommend? Thanks for your help. —Marianne

Dear Marianne: More than likely you will have the option to leave your account exactly where it is under the same terms and conditions. The only thing that will change with the sale is the name of the bank, and that may not even change. You'll just have to wait and see. But if it’s FDIC-insured, you can relax. You have nothing to worry about.

Dear Mary: The author of a personal finance book I read recently says that enrolling in credit counseling will destroy your credit. He says NOT to do it whatsoever.

Reading that, I panicked! My husband and I chose credit counseling and we are 14 months from paying off a whopping amount of consumer debt. Now I am wondering what horror is before us.

Consumer Credit Counseling Service has been a salvation for my husband and me. We felt that it was better to pay the debt than to claim bankruptcy. What now? —Molly

Dear Molly: In fairness, I have not read the book or even know what book it is, so I do not know the context of the comment. If the author says that when you have three choices—getting out of debt on your own, entering credit counseling, or claiming bankruptcy—then I agree that credit counseling should be the second choice. If you can do it, becoming your own credit counselor is the best option.

However, “NOT to do it whatsoever” suggests to me that the advice is that even bankruptcy would be desirous over credit counseling. I totally disagree.

I don’t know your specific situation, but you mention bankruptcy as if that would have been your only other choice. That being the case, you have done exactly the right thing. And I’m proud of you for making the choice to enter credit counseling.

There is no way to guarantee that your debt management choice will not affect your credit scores in the future.

Experian, one of the major credit bureaus, has this to say: “Accounts you pay through a credit counselor, including CCCS, typically are reported by lenders as paid through a debt management program. Most credit risk scoring systems now disregard that status. That means your participation in a counseling program would not be viewed negatively by most lenders.”

CCCS of Atlanta says: “Even if you enter a CCCS Debt Management Program, CCCS does not report your participation in our Debt Management Program to credit bureaus. Some creditors may report that your account is included on a debt management program. Creditors may report your account as current when they receive our proposal, while some wait until they have received three consecutive payments through CCCS. They appreciate that you are honoring your debts rather than running from them through bankruptcy, and after seeing a consistent payment history through CCCS, may look at you as a better credit risk than the typical consumer.”