Debt Consalidation

Debt Consolidation (different from taking out a consolidation loan, btw.) lasts for 5 years, and stays on your credit for ANOTHER 7 AFTER YOUR LAST PAYMENT IS MADE. A grand total of 12 years of your credit being screwed up *as badly* as a bankruptcy.

If ANYTHING happens during that 5 years (1 missed or late payment for any reason), all the creditors in the plan have the right to opt out, and stack all of your previous 'on hold' interest back up to where it was (interest is put on hold as long as you can stay on the plan), and charge you any fees and overages they deem fit. With the increased back-interest payments... even several years in... the lump sum the consolidatee is looking at is usually greater than their original debt.

Statistically MOST people who file for debt consilidation have to file for bankruptcy within 3 years. Which isn't the bad thing. The bad thing is the 'wasted' money they spent during the time they were in the plan, and the wasted years that they couldn't be saving or working on their or their children's future.

NO ONE should do Debt Consolidation (although many people would benefit from a debt consolidation loan).

CH13 bankruptcy is JUST LIKE Debt Consolidation EXCEPT:

1) You are protected under the law. No old creditors can show up, creditors under the plan are not allowed to change their ammounts. If you become sick, lose a job, have an emergency... the courts put your payments ON HOLD until you are able to pay again, and then those missing months just get tacked onto the end.

2) Your credit is affected for a MUCH shorter time. A max of 10 years, but it often falls off of your credit report as early as 3 years in. This is 3-10 TOTAL years. Not 3-10 after your last payment

3) Your living needs are ascertained by the courts FIRST (rent/mortgage, bills, childcare, car and home maintenance and insurance, SAVINGS, education expenses, medical expenses, life insurance)... THEN with the money left over THAT is what you pay. Instead of vice versa (in DC all your debts are added together and divided over 5 years, and whatever you have left is what you live off of).

4) Unlike CH7 you get to keep your house, at least 1 car, and any assets or debts you choose to exclude from the plan (aka continue paying on).

5) Is a variable time set up. Meaning 1, 2, 3, 4, or 5 years of repayments DEPENDING ON YOUR DEBT LOAD. How many years is calculated out by both your lawyer and the courts.

6) Excluding your retainer, the bulk of your legal fees are wrapped up INTO your settlement, which is paid monthly.

Bankruptcy is a CONSTITUTIONAL RIGHT. Just like a speedy trial, free press, right prohibiting unlawful search and seizure, the right to bear arms.

CH13 isn't right for everyone (for some a consolidation loan through a bank, or others CH7)... but it is a durn sight better and smarter than being taken in by a debt consolidation company.

8 moms found this helpful

C.:

DO NOT DO IT!!

Go to the library and get Dave Ramsey or Suze Orman and do it yourself!!

If you want to pay someone to pay your bills - pay me. I'll make deals with the creditors for you - something you can do yourself without damage to your credit report.

You HAVE to be willing to go CASH ONLY!! We (my exhusband and I) did debt consolidation and we ended right back in debt again. You HAVE to make the choice to live within your means.

Using a debt consolidation company will only make it easy for you for a bit. Pay close attention to the fees they charge. READ EVERYTHING - DO NOT skip a line, if something doesn't read right - ASK!! But really? I would NOT do this...do it on your own. You will feel a much better sense of accomplishment doing it on your own. Go to the library - borrow Dave Ramsey's or Suze Orman's books - then get going - gather EVERY single debt you have. Carry a journal with you for at least 3 months so you that you can track EVERY PENNY you spend - you will be amazed at where your money goes - coffee, tea, sodas, 7/11 - all of it - adds up FAST!!!

Call all of your credit card companies - including student loans - and freeze the accounts - get the interest rate knocked down and set up a flat payment plan - companies would MUCH rather do this than pay for a collection company...this way you keep your credit and do it YOURSELF!!

GOOD LUCK!!

7 moms found this helpful

I agree with everyone else so far, do not do it. We pay off one debt at a time and have for a few years now. I can happily say we are down to two debts outside of the car, house and school. Our tax return will take care of the other two. I can finally see the light at the end of the tunnel and it feels awesome to know how much and how hard I have tried for this.

4 moms found this helpful

DO NOT DO IT!!! My mom did it and it totally screwed up her credit and payments and on top of paying their fees, she is paying some kind of attorney fees that she won't fess up to why she is doing that. Its much better to do Dave Ramsey or even work with the credit companies yourself. Good luck!

4 moms found this helpful

Debt consolidation does not effect your credit one way or another. All it is is taking all your debts and getting a single loan for the balance. It tends not to save you money unless you use your home's equity as collateral for the loan. Home loans tend to have a lower interest rate than unsecured.

Now if you consolidate your debt and then run up the credit cards again that will have a negative impact on your credit score.

There are two things you need to watch out for, first there is no free lunch, these people want to make money so watch for hidden costs. The second is if you don't close the credit you consolidate you will be in the same condition, only worse, in around a year.

3 moms found this helpful

Some companies CAN ABSOLUTELY hurt your credit score long-term.

You need to find out their process. Some will tell you to stop paying on the debts and only pay them while they work out agreements with your creditors.

What this does is show delinquent payments. That definitely affects your credit. Your best bet is to see if you can get a debt consolidation loan through a credit union or bank. What that will do is get you enough money to pay off all of your various debts at one time. Then you only owe the bank/credit union the money at a hopefully lower interest rate.

In other words, you'd be making one payment instead of (say...) 6. It will be a much larger lump sum, but hopefully not more than what you're paying out separately to all your various creditors.

2 moms found this helpful

Do NOT do this!!! It only makes everything worse. Check out Dave Ramsey - he has many practical ways to become debt free.

2 moms found this helpful

I did a debt consolidation back in 1994. Yes it does ruin your credit, but meanwhile you build it back up again while you pay on your debt. It's weird that way. It really helped out a lot. Only one payment to the consolidation company, and they distributed the funds out to the creditors. You can go through a company like that, or you can file a chapter 13 which does just about the same thing. Depends on what debts you owe. :-D Good luck to ya.

2 moms found this helpful

Addition: So glad wrong C. - she can't fix her family members for them! C. C, Momof4 from Cuba is so right - don't do debt consolidation. You'll get scammed!

Original:
I assume you are asking for the people in your family who borrow money from you?

Don't send them to one of these outfits. They will get scammed.

D.

2 moms found this helpful

I suggest that you call 2-3 companies and ask them about their process. Like with anything else, much depends on who you are working with.

1 mom found this helpful

Wow a lot of long answers but if u need help there are free services that can help u, I did it myself. I wrote letters to each company cancelling cards letting them know how much I could afford to pay each month paying off high balances first etc, inbox me if id like more details. It was easier then I thought u just have to be willing to cut the wants and be dedicated

1 mom found this helpful

Bad idea.
There is no magic way to pay off debt.
Consolidation appears often just like a bankruptcy on your credit.
The old fashioned way is probably best:
Increase income, decrease spending and pay off the debts, smallest to largest, one at a time. Not fancy, but it works.
Oh! And to consolidate AND keep the credit cards active?
That's called Financial Suicide.

1 mom found this helpful

It is a form of bankruptcy------------ I am licensed to repair credit, realtor, etc..... it's best to ask each creditor to lower finance charges first----- it definitely affects your credit...........and sadly, had many clients do it- and the company never paid their bills........and the debt doubled!!! be careful
would love to tell you how to help your self without paying those companies:)

1 mom found this helpful

Years ago we used Consumer Credit Counseling Services, http://www.cccs.net/. It was great. They negotiate with your creditors to get you a lower interest rate and then they manage all of the payments. You pay them one amount every month (plus a small management fee) and then they disburse the funds to all of your creditors. Our plan was 4 years. At the end everything was paid off and our credit was actually better than when we started the program.

We've never been in that situation, however, those companies are simply charging you money to do what you can do by yourself.

If you have some self discipline and motivation, you can negotiate with credit card companies, budget what you pay monthly and take care of it yourself without making another check out to just let someone do it for you.

If you do it yourself, you will also learn more about finances and be less likely to make the same mistakes again.... that is if you are serious about getting out of debt.

Good luck to you.

Dawn B.>>>>wrong C.!!!!!

Thankfully I have never had to do this, but have heard stories. You pay these people one monthly payment and they pay your creditors. I have heard of them not paying your creditors and keeping the money. Just write out what you have and do it yourself. Another big Dave Ramsey fan!

C. I have used Consumer Credit Counseling and have about 2 more years and they have been great. Hasn't hurt my credit at all. Just recently refinanced my house and I have a credit score of 695. Good luck, lots of options out there.

Years and years ago I had a friend who went to a consumer credit counseling service. It was free, reputable and helped her. Unfortunately my understanding is that the bulk of what is out there now is a scam.

Would not recommend it at all. Go to daveramsey.com or pick up a copy of the Total Money Makeover by Dave Ramsey.