27 answers

Debt Consolidation Is It Worth It/does It Work???

I am currently in a lot of debt and looking at the possibility of using a debt consolidation company. Does any one have experience with them and can you tell me what the pros and cons are. I do know that it effects your credit score but since my score is not that great any more due to a pending short sale on my home and some financial problem I got into while I was laid off for almost a year I am hoping that this will be a better solution for me instead of filling for bankruptcy. Any advice you can give me would be a great help!

2 moms found this helpful

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So What Happened?™

Thank you to all that have responded. i did attempt to call a couple of the companies my self and of the 3 i called only 1 was willing to drop my interest rate from 22% to 16%. the other 2 told me that i have been making my payments and that at this time they don't fell that i need to lower my intrest rate. i have also called a credit councling/Debt management program and resaerched them on the BBB.com first to make sure they had no pending law suites and/or complaints against them. i am currently working with Money Managemnt International they ahve been able to get my intrest rate lowered to around 8-10% on each of my cards and are not charging me any fees up front just a 35/month fee. i have not signed anything with them yet and will be paying for an attorny to review the documents first to make sure they are lagite before i enter into any contract. they did not promess to lower my total debt all they promised was to lower my intrest rate and work with me on a monthly basis to help find better money management opportunites to put more back in saving and then start putting more towards my debt but at least there is a light at the end now.

Featured Answers

I joined CNI a few years ago and they negotiated a good portion of my debt away. Look into them too, I cancelled all my cards and have bad credit for a few years but I was waaay in debt too much to be able to make the payments.

I haven't done debt consolidation, but when I married my husband, I called all his creditors and told them how much I could afford in monthly payments and made agreements with them. I have found that calling creditors whenever I have a problem is always a good idea.

I have read that for consolidating the debt and making more doable payments....you will actually end up paying more than you originally owed on the debt in the first place.

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We actually got a consolidation loan through our credit union to pay off all our credit debt. You might want to look into something like that where you bank...it may be a better option than going through an independent company - it was for us. It has relieved our monthly burden in paying off the credit card bills by a few hundred dollars. I know my husband looked into a few companies when we were exploring the idea & finally felt that going through our credit union was the best fit for us.
Good luck!

1 mom found this helpful

When I met my husband, he was in a program where he consolidated all of his bills into one low payment. I was always against those as I had never done them, but had heard BAD things about them. While he was on the program, his credit score was pretty low.... BUT... once his bills were paid off (thank's to the company) his score shot WAY UP!! I thought it would have affected it negativly for a long time after, but it didn't. Because of the good it did for him, I decided to do the same and get my bills in order. I am currently on the program and I am LOVING it!! My bills were close to $500 per month... maybe more, and they got me down to ONE payment of $191 per month!!! The company we go through is called Lighthouse Credit Foundation. If you decide to go through them, please let them know that L. O'Connors sent you... you will need my client ID of "Client ID 211539". Thank you and if you have ANY questions, please feel free to message me. Good Luck.

1 mom found this helpful

Hi OG,

in about 2000 i consolidated about $60k in debt. I forget all of the specifics but I used a company called Lighthouse Credit Solutions http://www.lighthousecredit.org/. In about four years we were completely paid off. Not only was it an amazing feeling to be debt free, but what was even nicer was that i knew what the monthly payments were going to be be, they were withdrawn on the same day each month so I did not have to worry about paying the bills and stressing every time the mail came, and on top of that, the people at Lighthouse were always helpful and kind.

Good luck in what I know is a crazy stressful time.

M

1 mom found this helpful

Hello; It is a tough situation. I just watched a program
with Suzie Orman that show the priority of out debts.She placed credit card debt as the last of all financial priorities. Because it is not secured. The credit card companies cannot take anything from you only damage your
credit rating. I personally discussed my debt with the
American Credit counselors. You can go online and put in
all your information for them to see. They will then have
a phone conference with you and it is all FREE!!!! Yes, free.
They were most helpful in determining several directions for
me to go. Hope this information eases some of the stress and
tension you are feeling. You can always start over. Good luck in the crazy financial time.

Hi OG,

I will say it does work if you want to be strapped with a company for years. It does affect your credit score which you really need to weigh if that is something that matters to you. Instead of going thru a debt consolidation company I actually took a class called Financial Peace University. It is phenomenoal and I would recommend it to anyone. You can check it out on www.fpu.com. It is run through Dave Ramsey and a lot of times you can find that local churches may have a class running. It costs $100 for a 13-week course and after the course I had over $2000.00 in debt paid off and it was the first time I had actually had a savings started. Good luck!

First I'd just like to say you're not alone. Obviously millions are in the same boat. And kudos for you for looking to take action to get yourselves back on top ASASP. I don't have experience with credit consolidation, but depending on the amount of debt your better bet may be bankruptcy, particularly if the debt is primarily in only one of your names. It will hit the one who files for awhile but it only takes a year or two of conscious effort to make you look credit worthy again (in fact you'll get hit up with credit card offers the day after you file because they know you can't claim bankruptcy again for a few years by law - so ironically that's the safest time for them to loan you money). You have to spreadsheet out how long it would take you to pay off the debt and if that will prevent you from building up your savings. If so, you might opt for BK as you might be able to use your cashflow to put away a nest egg in case you get laid off again, rather than paying off even a reduced amount of credit cards. Talk to an attorney about it, as you'll want to make sure you do it correctly if that's the path you pursue.

by debt consolidation do you mean lumping several bills into one new loan? Don't do it. We did it several times and only dug a bigger hole.
However there are companies out there who work as intermediaries with your creditors. they work with your creditors to stop the extra fees and may decrease your interest rate. You will need to allow the debt management company to set up an automatic payment to them once a month, then they pay your bills for you. The company we used charged about $30 a month but that was a lot cheaper then the credit card fees. This worked for us to get out of debt and I would recommend it. Unfortunately, I don't remember what company we went with.

Dear O G,
I'm sorry you're going through all of this. It won't really make you feel any better, but you are not alone. So many people have really been hit hard by this economy.
My friend wanted to do a loan modification to get her interest rate down. She had never been late or missed a payment, she just wanted a new rate. She was told by a mortgage broker about a program in which she had to quit paying her mortgage for a few months in order to qualify. It didn't sound right to her, but he'd done several of her home loans for her, so she did what he said. Long story short, her house is in foreclosure and that broker is missing in action. She saw a bankruptcy attorney to get it all straightened out, but still may lose her house.
My neighbor went through a debt consolidation company and he swears he will NEVER do it again. He is paying incredible payments each month, his credit is wrecked anyway, and he can't get out of the contract. I'm sure some companies are better than others, but he didn't pick a good one.
My point is: Be very careful!!!!

Best of wishes and luck to you!

i consolidated my credit card debt and it was totally worth it. my credit sucked while i was paying off the credit cards, but then when everything was paid off, my credit score vastly improved. i thought it was useful and helped.

I have read that for consolidating the debt and making more doable payments....you will actually end up paying more than you originally owed on the debt in the first place.

I haven't done debt consolidation, but when I married my husband, I called all his creditors and told them how much I could afford in monthly payments and made agreements with them. I have found that calling creditors whenever I have a problem is always a good idea.

Hi O G,

Filing for bankruptcy depends on how much you owe. Doing a short-sale on your house doesn't effect your credit. People do short-sales on their house to save their credit, but don't get the proceed from selling the house. The bank takes it all. However you will still be issued a 1099 for that. I hope your agent explained that to you.

As for you personal debts. How much do you owe? If you are in debt more then 30K. I suggest that you file for bankruptcy. It might effect your credit. But, it all depends on what chapter you file. If you do file chapter 13. You will have bad credit for 7 yrs. It might be worth it. If you can't handle paying off your debts.

After 7 yrs. Start all over again and you can buy a home. 7 yrs will fly so quick. Rent first and save all your money for the home that you want.

I suggest you consult with a bankruptcy attorney about filing. Good luck!!!!

Debt consolidation companies are incompetent at best and scams at worst. The gist is that they have you stop paying on all your credit cards and pay the debt consolidator company instead. Then about 6 months later (if they're still around, and haven't absconded with your $$) they try to negotiate with the credit card companies on your behalf. By then, your credit is trashed and the credit card companies will settle because they figure something is better than nothing. You could do this on your own, without getting the debt consolidation companies invovled and having them take their cut. Don't do it! Listen to Dave Ramsey - he's been in your exact situation and has great advice and hope for people in your situation.

http://www.daveramsey.com/the_truth_about/debt_consolidat...

Good luck, give your husband & kids a great big hug (you will all get through this, and be better and stronger for it!) and hang in there.

Hello there. I know this is long but please read. I was a victim of debt consolidation 8 years ago. This experience was a nightmare that would not go away. I wrote all three credit bureaus and informed them of what happened and provided all the facts. I kept everything and the bureaus DID NOT care. My credit report and score was negative all around. The company I went through was called Jubilee Financial Services. They had an office in downtown Sacramento however they are not around anymore. They were advertised on the Christian music station so I thought I was in good hands. The way this works was I pay them and they pay my creditors. They promised that they will cut over 1/2 of my debt. At the same time they told me not to answer any calls from my creditors which I did exactly. I paid them over $6000. One day I rec'd a letter from the Federal Trade Commission telling me that this company had illegally used our money and never paid any of the creditors as promised. There were no assets available. There was a class action lawsuit against them. Until this day, I have not rec'd a penny from the lawsuit because there were too many victims. After losing $6000 I was hit by two lawsuits from two credit card companies. I had to hire a lawyer. I felt so betrayed, hopeless and helpless. I wrote to the Credit Bureaus but it did not go anywhere. I fought and pleded my case until 3 years ago I finally gave up. My credit is a little better now.

If you decide to go this route, please be careful. I would advise that you call the creditors and explained what happened. I found out later that some credit card companies will lower your rate and work with you. I wish you and your family the best of luck during these hard times.

I spent 6 months researching this option...
You should talk to Consumer Credit Counselling and nfcc.org first. There are a million "for profit" companies that pose as credit consolidation companies - if you do a little digging you'll find they all have terrible scores with the BBB and many are being investigated and shut down for fraud.
Here's how they work - you pay them UP FRONT 15-25% of your debt in fees. They change your address and phone number to theirs with all of your creditors - you pay them a certain amount of money each month - they pocket the first payments until your "fee" is paid. Meanwhile your creditors could be busy suing you and you won't know about it because they are calling and writing the colsolidation company. Your credit score will completely tank.
Eventually, once they have enough of your money stored up they will contact your creditors on your behalf and TRY to negotiate a flat settlement amount and one by one pay them off. So, even if your Visa has been paid off - it doesn't mean your Macy's card has seen a penny in payments yet.
BE VERY CAREFUL - they are all charming and articulate on the phone and VERY enthusiastic. Also, even if you tell them you've decided to go with another option they will continue to call you 2-4 times a day with a sales pitch to get you to sign up.
Going with CCC will put a negative mark on your credit - but they are legit and can even help you work out a household budget complete with advice on where you are overspending and how you can put more $$ away for a rainy day. ALSO, if they think bankruptcy will be a better option for you, they will tell you so and steer you towards a good lawyer.
Meanwhile you can call you credit cards and negotiate a payment plan and reduced interest rate. Skip a payment and they will become VERY helpful especially since you can prove you were on unemployment and now have new jobs. You can do all of this without paying a fee to anyone.
Courage my Friend!

It will ruin your credit. They make it sound like it is good. I did it for 2-1/2 years in the 90's and never got out of debt $15,000 later. I finally got things paid.

I would not advise it. You are better off filing bankruptcy.

Roxy

I have used a debt consolidation company before and I will tell you that my credit was viewed worse than my mother's who filed for bankruptcy! This did not make sense to me because I feel like I stepped up to the plate and paid my bills off and she (I felt) took the easy way out, yet I was being penalized for it.

I have been told that you can essentially do the same thing that they do and that is to work out payment arrangements and get them to lower the interest on your own. It is a little more time consuming but it is exactly what these people would do for you while making your credit score really bad.

Times are definitely tough right now and I need to get busy and start doing the same thing right now. I figure I will do one at a time and try to pay one off at a time. That is the only way I can afford to do this as every card I have has increased my interest which has more than doubled my payment and now I can't afford to make all of the payments.

Anyway, I hope this helped.

One other option you may want to consider is something a good friend of mine did recently instead of debt consolidation. Call up your creditors, explain your situation and ask them if they could lower the amount of interest so the payments are more affordable. You would be amazed what credit card companies can and will do. This is basically what debt consolidators will do on your behalf, but probably not as good of a job and it will hurt your credit. Doing it personally shows proactivity and will not hurt your credit. Good luck!

I went with Delray CC and they screwed up my credit. I was current on all of my payments when I went to them. They took three months to start paying. They had to collect a deposit and wait for the credit companies to approve their proposals. I have awful credit now. I still paid the same amount anyway plus extra to them for "helping" me. And when I paid off my cards with money I had come into, I forfeited my deposit. That was $650! I had no idea that would happen cuz their rules were so vague. They expected to work with me for the next five to ten years. Paying off any sooner forfeited the deposit. Don't do it. It's a scam.

My friends went through a debt consolidator and it is costing them $1700 a month for ten months, that's just to the consolidation company. And the company wasn't able to settle debts with all the card companies. My friend ended up settling up with a card company herself for 40% of what they owed. These consolidation companies are not affiliated with all banks and lenders. I would make sure that if you are paying them good money for a service that they can work with all your creditors. Plus, like my friend did, if you explain to a credit card company you're inability to pay, they will often work with you. I would try working with the companies and explaining that you have to consolidate your debt; that they can work with you or they'll be working with your consolidator (if you have to get one). I have other friends who did this and it worked out. The credit card companies reduced the debt owed considerable and worked out a payment plan.

Hope it all works out. The stress and difficulty of prolonged unemployment is something one has to live throught to appreciate.. We went through it ourselves. Best of luck, don't loose hope.

Trying to "get out quick" could get you into trouble. Try not to be in such a hurry that you forget to be realistic. Best of luck to you.

Make sure you do it with a nonprofit credit counseling service. These are not set up to make money but to keep you from bankruptcy and the credit compnies from losing all the money you owe. This is different from a for profit debt consolidation where their goal is to make money first, then help you.

Your credit score will eventually recover in a year or two.

Hi there. My name is T. and first I must tell you and your husband I am deeply sorry you have gone through all this financial strife, especially both losing jobs in such a short period of time of each other. You have one good thing on your side and that is that you are willing to make things better even if it means losing some.
You need to see how many creditors you have, whether they are yours only or both of yours being as you are married, find out how much is owing on them and how long you have been unable to keep up on payments first.
I checked out the debt companies once in the last couple of years as I had over 9 credit cards owing. The debt places all say they will take each company, contact them, calculate a % that you will need to pay to them and "consolidate" your payment for you. The catch is that these companies then however tell you, you have to pay them $X to do this. Either way, since these same credit card companies are doing this, why not do it yourself? That is what I did. I contacted the companies myself first with a hardship letter, then with an offer which was usually 1/2 of what my balance was or more than 1/2, a time limit to respond and if I did not hear anything, I contacted a customer service person and also a supervisor on the phone, said what I would do to close the account, told them the money would be sent that day and when accepted, followed with the money and letter for my records. Make sure you always get the names of people you talk to because if the company tries to say they did not agree, you have names and dates that they cannot refute.
I am a paralegal in Sacramento and would be happy to talk to you more if you need help. Also, my attorney I work with may be able to help also as a last resort.
My email is ____@____.com if you would like to discuss further.
Good luck to both of you on your road to recovery!
T.

BE CAREFUL!! Check out any company that sounds to good to be true (BBB).

My daughter was hopelessly in debt. They make really good money but my son-in-law is spend crazy. She tried a company that advertised to be a "Christian" company that would lower her interest and reduce paymnts needed. Six months of payments later she was in worse trouble because they had not sent one dime to the companies owed.She was getting phone calls until 10:00 at night from collection agencies.
They were calling and threating her every waking moment.

She then called and confronted the debt consolidation people with the information she had and threatened to sued for false advertising. She had nothing to loose at that point. She had already talked to 2 different Bankruptcy lawyers. She had to sell her car to hold on to the house. But decided to call Consumer Credit Counseling.

They have been wonderful she has gone from $60,000.00 in debt to $17,000.00 in a year and a half. Her credit score has gone from 520 to 714. She still has a way to go but Consumer Credit Counseling helped her tremendously.

Good luck and I hope you find the answer you need.

Several years ago I went with Consumer Credit Counseling and had a great experience with them. I learned my lesson and, as great as my counselor was, I plan on never using their services again.

I have heard lots of horror stories about companies that are not good. I would check with the BBB before you proceed.

Hi there,
We looked into this last year when we encountered some of the same problems. You have to be really careful about which companies you go with - there are many, many fly-by-night places out there who say they will fix your credit, but then will take your money and not pay your bills as promised! The best ones are the non-profit credit counseling agencies. The one we looked into was http://www.cccsatl.org/. We ended up not doing it because it would not have lowered our payments at all, but would have damaged our credit. Your situation may be different; it's worth looking into. They will also tell you if your debt vs income ratio would make it better just to declare bankruptcy. (Which is not always as bad as you think, apparently - since you can only declare bankruptcy once every 10 years, I've been told that creditors will extend credit again relatively soon after you go into bankruptcy - who knew?) I was quite impressed with CCCS' knowledge when we went through the process, even though we didn't end up enrolling in the program.

I joined CNI a few years ago and they negotiated a good portion of my debt away. Look into them too, I cancelled all my cards and have bad credit for a few years but I was waaay in debt too much to be able to make the payments.

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