Any opinions on dept consolidation companies?

[Peter Vincent]

Anyone know the pros and cons of using a dept consolidation company? Good idea or bad idea? They make it sound like a good idea. I know that it severly screws up your credit rating, but according to them the dept is basically cut in half and eliminated in 36 months with a very managable monthly payment.

Thanks,

Peter

 

[Tom Schindler]

From the information I read from doing research in mortgages, lenders see this as bankruptcy.



Depending on your financial situation, it may, or may not be a wise choice.



In the end, only one person was responsible for putting themself into debt.





Tom

 

[Peter Vincent]

Thanks Tom I needed that

 

[Thomas Rogers]

Pnoid,



I'll tell you what I tell everyone else wanting to get out of credit card debt:



Freeze the credit cards you have (in a block of ice in the freexer), sell the home you are in if you have one and rent a smaller place, if you rent then move out and rent a smaller place, sell any cars worth anything and buy cheap crapboxes, get second job or third jobs, stop going on vacations, stop eating out, stop any/all hobbies and pasttimes that cost money...and pay down the credit cards.



Good luck.



TJR

 

[Martin]

It can have little to no affect on your future credit ratings....unless the laws have changed with this, it had no real affect on us getting new credit cards with other banks, etc. which is why we ended up consolidating again and again. :wacko:



Years back when I was 'married', my ex and I consolidated a few times. If this is something your are going to do, just make sure you make big changes in your future spending so you don't get into the same boat over and over again. My ex never learned that which is why we had to consolidate a few times. My fault in the mess....she took care of all the bills and I just assumed she knew what we could afford or what was being paid, etc.



When I divorced her, there was no way to consolidate, the bills were far too high and even if I did try that route, the monthly charges were still higher than my weekly take-home. My only out was to go chapter 7 and wipe out aprox 48K credit debt that I ended up with after closing out several accounts, many that were joint in my name.



Two months after the discharge, I was flooded with new credit card offers....guess they thought I was a safe bet since I couldn't bankrupt again for 10 years.

 

[Jacob Dryer]

Do you have a good/great credit score still and are just up to your nose in debt?



If your credit score is high enough you might be able to get an unsecured loan for the amount of the credit cards debts, and other smaller loans to consilate it all into one payment at a lower interest rate..



My boat loan is technically an unsecured loan and they didn't have any problem giving me the money without putting a lein on the title or anything, we got more than we needed and consolided some other bills and have it almost paid off now in just over a year.

 

[Chris Kulbaba]

Consolidating your debts... I would disagree that this is anything even close to a bankruptcy.



You can consolidate through your bank. Its basically getting a loan to pay off all your debts so that the payment is being combined into 1 basically. So if you had 5 bills with varying interest rates, your bank would give you a loan to pay them all off and you would pay the interest rate at the bank.



I don't see how it could possibly be anything like bankruptcy. If anything I would say this is a SMART move in the eyes of most people as there is no point in paying 5 bills when you can just pay 1 and if its credit card debt with a high interest you would be paying WAY less through a bank loan.



I've never done this, but I know several people that had when I was younger and no-one had mentioned anything about a negative mark on their credit score.

 

[LaRue Medlin]

My friend did it,,, Cut her payments down to 1/2 of what all the min were. 3 years later, no cc debt... of course now she has no credit cards. Had to close all the ones she consolidated. Never to reopen. This is at least what I was told.

 

[Gavin Allan]

Go check out what Dave Ramsey has to say about debt consolidation.



Just another way for another creditor to get into your pants.



Just pay off your debts and don't get more. Get a second or third job. Sell the car. Eat rice and beans.



Just think about the logic here: You are deep in debt and you think getting yet another loan is going to be a good thing?



Sorry, but I agree with Caymen here. No way to sugar-coat it. Debt consolidation is a false salvation that is viewed very negatively.

The Truth About Debt Consolidation



Myth: Debt consolidation saves interest, and you have one smaller payment.

Truth: Debt consolidation is dangerous because you treat only the symptom.



Debt consolidation is nothing more than a "con" because you think you've done something about the debt problem. The debt is still there, as are the habits that caused it - you just moved it! You can't borrow your way out of debt. You can't get out of a hole by digging out the bottom. True debt help is not quick or easy.

Larry Burkett, noted financial author, says debt is not the problem; it is the symptom. I feel debt is the symptom of overspending and undersaving. Our certified counselors will not recommend debt consolidation for a client. Why? Because debt consolidation doesn't work.



Debt Consolidation Statistics

A friend of mine works for a debt consolidation firm whose internal statistics estimate that 78% of the time, after someone consolidates his credit card debt, the debt grows back. Why? He still doesn't have a game plan to either pay cash or not buy at all. He also hasn't saved for "unexpected events" which will also become debt.



Debt consolidation seems appealing because there is a lower interest rate on some of the debt and a lower payment. However, in almost every case we review, we find that the lower payment exists not because the rate is actually lower but because the term is extended. If you stay in debt longer, you get a lower payment, BUT if you stay in debt longer, you pay the lender more, which is why they are in the debt consolidation business.



Debt Consolidation Example

For example, let's say you have $30,000 in unsecured debt, including a 2-year loan for $10,000 at 12%, and a 4-year loan for $20,000 at 10%. Your monthly payment on the $10,000 loan is $517 and $583 on the $20,000 loan, for a total payment of $1,100 per month. The debt consolidation company tells you they have been able to lower your payment to $640 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans together into one. Sounds great, doesn't it? Who wouldn't want to pay $460 less per month in payments?



But they don't tell you that it will now take you 6 years to pay off the loan. This may not sound that bad to you at first unless you realize how much more you will actually pay in additional payments. You will now pay $46,080 to pay off the new loan vs. $40,392 for the original loans, even with the lower interest rate of 9%. This means you paid $5,688 more for the "lower payment". Not such a good deal after all. This example shows you why they are in the business - because they make money off of you.



The Real Way to Get Out of Debt

The answer is not the interest rate; the answer is a Total Money Makeover. The way you get out of debt is by changing your habits. You need to commit to getting on a written game plan and sticking to it. Get an extra job and start paying off the debt. Live on less than you make. It is not rocket science, but it is emotional, which is why most people need help getting through it from someone like Dave Ramsey. Don't try debt consolidation!

 

[Jeffrey Travis]

sell the home you are in if you have one and rent a smaller place, if you rent then move out and rent a smaller place

Too much of a blanket statement especially with the housing market.



He may have taken an FHA at 97% or so LTV or maybe even VA at 100% and now is upside down. If his credit sucks and he is trying to rent they are going to look at his rating as well. Also, his house is a pretty good tax write off and I would say also a good motivator to want to work hard and keep, especially if he does have some equity in it. Rent - no tax write off, no equity.

sell any cars worth anything and buy cheap crapboxes

'03 Sport Trac - if he bought new it should be paid off soon. Possibly 'refi' the truck to pay off the cards - rob Peter to pay Paul but you can get a user car load for about 5-6.5% as opposed to what is on a credit card. Just make the payment or lose the ST.



If you smoke, stop. If you drink, stop (in moderation, can't go crazy here!). Pack a lunch....PB&J can be a refreshing change and remind you of when you were young - it's a simple pleasure I have picked up now with my kids.



Buy a bike or use public transportation instead buying a crapbox and keep the ST but limit the driving due to gas $$.



Sell stuff you have just floating around on craigslist or ebay.



Change your cell phone plan to a lower one, change you cable to a lower package (no need for HBO anymore, the Sopranos is over - furghetaboutit)



I do agree with freeze the credit cards.



JT#14

 

[Gavin Allan]

Sorry, if I can't afford to drive my Trac, out it goes. I'm not paying for something or having alot of money tied up in something I can't use.



Selling the house: If you can't afford it, you can't afford it. I wouldn't keep something that was dragging me down because "it would cost too much to sell". Hell, it is already costing you too much, so get rid of the boat anchor.



Travis's other ideas are good ones.



Just depends on if you are serious about getting out of debt or if you are just playing around. You'll never get rich by taking on more debt.

 

[Tom Schindler]

Consolidating your debts... I would disagree that this is anything even close to a bankruptcy.

This is not taking out a loan and paying off debt, this is a whole different ballgame. There are companies out there that work the system and consolidate your debt into easy payments. Unfortunatly, it is not viewed as a wise move. Not sure how it exactly works, but financial institutions view that as bankruptcy.



This come straight out of 4 different mortgage books that I read to learn as much as I could about mortgages.





Tom

 

[Thomas Rogers]

Travis, of course, selling a home only works if you have equity in it before the sale (and can sell it), and/or if selling it will put you in a much better cashflow situation after the sale. But, that is exactly the case for many homeowners today.



I know several homeowers that are sitting on equity, but are living paycheck to paychek and racking up credit card debt. The house and it's big mortgage to them is an albatrose that if they sold, they could pocket some cash, and live more modest as a renter (or, gasp, even an older, smaller home)...most just choose not to.



I only have 10 years left on the foul around my neck.



TJR

 

[Gypsy me]

Are you thinking debt concolidaton or debt relief as in getting out of debt?





if you want to get out of debt, Genus Credit management or Freedom Debt Relief. They contact the creditors and settle for you from 30 to 50 % percent less than what is really owed. You have to sign a contract and close all of your creditor accounts. They will not include car loans or house loans, And you can not..I repeat can not get any credit until all debts are settled.



Once the contract is signed by You and returned..they contact the creditors for you on your behalf.



Does it ruin your credit?...for a couple of years maybe three (depends on how much you owe) it does.



Can the creditors come back later and say you owe the extra money?



Nope, once they settle-- they sign an agreement stating they are settling and agree to the term and you owe nothing more to them, most will put a favorable statement that your debt was settleed and paid in full with the national credit reporting agencies.



Will you be able to have good credit again? Absoulutly Yes, most of these companies can help you rebuild your credit once you are debt free. But really keep a level head when you get credit cards... maybe ONE for emegercies only. and set the limit to 1500.





Debt Concolidation, A loan that is taken out to pay off all of your creditors. If you do this. close every one of your credit cards or accounts once they are paid off. You are paying off a loan now. The interest on this loan should be lower than your credit cards interest. Your payments combined just may be lower than what you were paying out.





But really look at that bottom line.... if it's only going to save you 50 to 100 every month...then the next Idea may be best for you,



the next idea:

How do you pay off bills faster yourself? Take a long long look at where the money is going.



See what you can really live without. Does anyone shop excessivly in the house? Then stop it. Do you go out to eat alot? Cook more home meals. The point here is that if you can save money one place...you can then put the extra to the lowest bill owed and get it paid off early. Close the account when you pay it off. Then work on the next one.

Just ask yourself questions like Do we really need to buy this????

If it's possible get a part time job. All of that money should go towards the lowest bill owed first...then the next one etc... with sacrafice, hard work and being creative in your thinking of where to save money and put the saved money. It should be easy to get your debt out of the way. Pay triple the monthly payment...you'll see more of a dent of reducing the bill.





hope some if not all of this helps!

 

[Richard L]

Call the creditors and try arrange for an alternative payment plan. You can kind of do your own debt consolidation yourself by just calling the companies and tell them the problem,



Yes, many will not go along with a payment plan so then you go to step two.



If the bulk of your dept is credi cards, cut them up and throw them away. Then don't make payments on unsecure debts. Yes you iwll get harrassing telephone calls so you might want to change your telephone number and have it unlisted. Eventtually, the credit card companies will turn over your account to a collection agency. They have no more power than the credit card companies. Eventually, they will accept a one time payment of about 1/2 the credit card balance because the other half was just finance charges and late fees tacked on by the CC Companies.



The CC Companies know that nearly all unsecured debts are wiped off by bankruptcy, so they don't want that to happen, so they are willing to take a lot less than to end up with nothing.



I had to do that a number of years ago and it realy did not hert my credit. I don't use Credit cards anymore. I only use my American Express and pay off the balance every month. I also have a Visa debit card with a line of credit, but I only use it in lew of writing checks. I do have a low interest (7.99%) Master Card which I have never used and will only use in case of an emrgency...which I'm not sure what kind of emergency that would be?



Since then I have purchased new vehicles including a new Mercedes Benz with a low interest loan and I actually have a pretty good credit score.



The fact that you settle the accounts is what is important. If your credit report shows that the account was settled, there is far less of an effect on your credit.



If you have to go into bankruptcy, you can still keep your house, and a vehicles. Most personal property like clothing and furniture is exempt as long as it is not excessive.



You can also go to a lawyer who speciallizes in Bankruptcy and just talk to him to get the lay of the land. That's what I did and he advised me not to pay the Credit Card Companies which I did stop and paid them off later when they where willing to take about half the amount they claimed.



...Rich

 

[Nelson Atwell]

Here is my take on this. I don't plan to ever buy anything on credit again. I already own a house and a car. After the bath I took on my two STs and Mazda, I plan to only buy used cars in the future. I don't plan to get anymore credit cards. Why even worry about a credit rating? If you only buy what you have money for, then it doesn't matter.

 

[Tom Schindler]

Why even worry about a credit rating?

Some day, you may need to buy a different house.



I do agree on used cars. You save money big time going used, but in some cases, buying new is cheaper. That is why I got my 2002 Sport Trac new. For $1,000.00 more, I got a new 2002 Trac with zero miles that I could have gotten a used 2001 with 30,000 miles.



Even in that case, I put as much down on it as I could and then payed the loan off as fast as I could.



I use credit cards. Note the words I said that in. I did not say "I abuse credit cards".



There is a difference.





Tom

 

[Tom Schindler]

If you have a 401(k), cash it in. You will take a 10% hit on it, but that is less than the intrest you will pay.





Tom

 

[Richard L]

Let me emphasise that it is not a good idea to cash in a 401K or get an equity morgage on your home to pay off Credit Card debts. Those items are already protected by bankruptcy laws and you don't want to loose your home over credit card debt that they can't collect on anyway.



If you are fairly young, you will have plenty of time to rebuild your credit after a bankrupcy or even if you don't settle with the credit card companies (settleing will make it much easier)



If you are older, you don't want to start heading towards retirement with all that debt and no 401K, or IRA, and owing on an equity loan on your home. You are setting yourself up to be old an homeless. So even if you don't settle with the credit card companies and your credit is damaged, you can probably live out the rest of your life without needing credit anyway.



I have just recently payed off 2 gas credit cards and close those accounts, and I will pay off my last gas credit card within the next month and may keep that one open, only for emergencies. I will put all my gas purchases on either my Debit card or my American Express.. Not having to pay the interest on the gas credit cards is like getting gas for about 25 cents per gallon cheaper :lol::lol:



...Rich

 

[Gypsy me]

I agree that you should not cash in the 401K. That is important for your future.



Calling credit card companies on your own can work but most of the time they will only reduce interest only for so many months 3-6 months. (remember that is how the make more money ..charging interesst.



Debt relief companies (good ones) are trained to talk to creditors. They also know the laws per the state the companies and where you live regarding credit cards. They know what they can do and not do with specific creditors. They also know how much they can get knocked off the bill. Like I said, yes debt relief will hurt your credit. but if you are looking to pay off debt it would be worth it.



You can always rebuild the credit after all your debts are cleared. It is a way to avoid bankrupsy and creditors are more willing to work with these agencies so they can still get some money off the account.