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!

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 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.

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.

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!

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!!!!

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.

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.

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.

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.

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.

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_consolidation_3035.html.cfm

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.

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.

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!

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.

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 Linda 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.

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

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!

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.

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.