Credit Union Debt: Consolidation and Transfers for Less

Credit unions operate a lot like banks. They provide a range of financial services (credit cards, debit cards, loans) and they charge interest rates, demand repayments, and report to credit bureaus. However, there is one key difference: They are not-for-profit companies, which means all the money they generate goes back into the union and benefits its members.

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Every “customer” of a credit union is a member and as a member they can receive loans, open credit accounts, and vote to elect their preferred directors. The services provided by credit unions are generally available for less than the same services provided by banks, with one survey reporting an average saving of nearly 2% interest for credit cards and 1% for loans. 

They are a good option for consumers seeking an escape from debt, but it’s also possible to get into a lot of debt with a credit union and when that happens things can turn ugly. In this guide, we’ll look at credit union debt consolidation and management, as well as credit union debt issues.

Credit Union Debt Consolidation

The reduced interest rates charged by credit unions means they are often used to acquire debt consolidation loans. A consolidation loan is simply a personal loan used to pay off all other debts.

As an example, if you have $10,000 worth of credit card debt spread across two cards and $5,000 worth of personal loan debt, a single consolidation loan of $15,000 can clear those debts in one fell swoop. You’ll still have $15,000 worth of debt, but you’ll be paying less interest, have fewer fees and penalties to worry about, and only need to manage a single account.

A new credit card can also help. Opening another account with another high limit may seem like a bad idea when you’re struggling, but there is method to the madness.

Credit cards come with introductory rates, offering between 12 and 24 months of interest-free payments, as well as cheap or free balance transfers. You can open a new account, move all existing credit card debt onto it, and then enjoy chipping away at that debt interest-free. 

It’s worth noting, however, that many refinance credit cards charge a higher APR once the introductory period ends. For this to work, therefore, you should plan to clear the debt during the introductory period and be careful how you use the card thereafter. 

Credit Union Debt Management

Credit unions can be helpful when you need financial assistance. They provide consumers with an array of debt management tools and services and also offer free debt counseling. The better credit unions have extensive online programs, including webinars, educational resources, budgeting tools, and in-house counselors/experts. They’ll guide you through your personal debt problems and then provide you with general advice to ensure you’re well equipped moving forward.

All credit unions should have some form of debt relief program, however, so check with your nearest branch and see how they can help.

Understanding Credit Union Debt

Debt is debt. It doesn’t matter who you owe money to, you’ll still need to repay it and your finances and credit report will still suffer the consequences. Don’t assume that a credit union will be more lenient with you just because they’re not backed by a money-hungry multinational.

They can provide you with more options, including debt management counseling, but they’re not going to readily dismiss your debt or allow you to pile debt on top of debt.

Credit Unions can and often do operate like banks when you don’t pay your debt. Here are a few FAQs to help you understand what they can and cannot do.

Can Credit Unions Repossess and Foreclose?

Auto loans and mortgages are secured for a reason. If you fail to meet the monthly repayments, the credit union may repossess your property to recover their funds. There are times when you may have inadvertently signed away your car/truck as collateral against credit card debt. So, if you’re signing up for loans, credit cards, and checking accounts, make sure you know what you’re getting yourself into.

Can Credit Unions Take Money out of my Account to Recover Debt?

The Fair Credit Reporting Act of 1986 makes it illegal for a bank or credit union to remove money from your checking account to cover credit card debt. This is known as “offsetting”, because they offset the money you owe them (a credit card) with the money they owe you (a checking account).

However, this law doesn’t apply to personal loans or auto loans and there are also exceptions for credit cards. The main exception is if you signed a contract that allows them to do this. They can be sneaky like that, so make sure you read the small print. 

Is a Credit Union Always Better than a Bank?

Not necessarily. If that were true, banks would be driven out of business. They certainly try to position themselves as having better customer service, lower fees, and better rates, but that isn’t always the case.

Many credit unions charge higher interest rates on loans and credit cards so they can provide higher rates on savings accounts, and they don’t always live up to their promise of “great customer service”.

Credit unions can also be a little behind the times when it comes to technological innovations and rarely have 24/7 customer service.

Conclusion: Credit Unions Are a Mixed Bag

Credit Unions are a great option for debtors seeking counseling, management, and consolidation services. They can also provide a complete banking service with better support, lower fees, and more enticing rates.

But they’re not perfect. As with any financial service, it’s important to read the agreements before you sign and to make sure you know what you’re getting yourself into. Don’t expect them to be more forgiving of debt and missed payments, because they can be as ruthless as the companies they were designed to replace.