Can someone explain how debt consolidation works to me?

Question

I need to pay off some serious debt but can't afford the minimum amounts due... is this something that would help me? How?

Answer 1

Debt consolidation is you add up all of your debt, then take out a loan for the amount you owe on all of your other debt and pay everything off with the loan. You then have one monthly payment to the loan, which is hopefully at a lower interest rate then your credit cards were.

It can work and help some people. However, I've seen way too many people pay off their debt with the loan then immediately start charging things on their credit cards again and get into worse financial problems then they were in prior to the consolidation loan.

If you can do it and not start using your credit cards all over again, go for it. If you are a shopaholic, don't do it. You'll just end up in worse shape.

Answer 2

The concept of debt consolidation is that the debt consolidator negotiates favorable terms with your creditors and you make one payment per month to the consolidator who in turn pays the creditors. You really have to be careful since there are more unscrupulous debt consolidators than honorable ones. Many of my clients have paid thousands to debt consolidators without any favorable impact on debts.

I'm not saying that it is not a good concept. However, I have found few people who have had it work satisfactorily for them.

Check carefully before you sign any contracts or make any commitments.

For my money, it is better to pay extra on your highest rate credit card until you eliminate the debt and then pay extra on the next highest rate credit card debt until you eliminate that debt.

If you close out your accounts, you can often negotiate a more favorable rate. Keep after the companies. Maybe this is something you can do by yourself.

If all else fails, you can seek relief under chapter 13 or chapter 7 as applicable.

Answer 3

Faye is correct but if you are talking about those debt consolidation companies then the things you need to know are
1--they further trash your credit by not paying until all have reached charge off status. Then they make settlement offers to pay. Then they will pay off the least amount and in the time being they make you pay them for the privilege to not pay. This will go on and on for years they do not work for free.
2--All future lenders can and many do see this as a chapter 13 bankruptcy petition. Since you are trying to restructure your debt.

If this is the part you were talking about then just file the 13 anyway. There is life after a bankruptcy and you will learn your lesson about irresponsible spending. Oh, by the way.
You will not get any more collection calls from them since the federal law prohibits that. You will have to pay it all off in 5 years and do no include your mortgage if you can help it. It may be the only place you can get $$ to pay out of BK sooner.

Answer 4

Bad credit is one of the worst problems to have... however there exists a solution.

I will hereby talk from my personal experience.

I did debt consolidation a couple of years ago, however If I had to do it again I would pay to some minor details,
if someone wants to get out of debt today it is pretty easy with a debt consolidation plan, however it may get a bit tricky at times, I suggest you get as much information as possible online on this first,

a good place to start in my humble opinion is astraight to the point ebook with question and answer I found :

http://umgarticles.atspace.com/debt-consolidation.htm

if it helps kindly remember me in your voting!.. cheers!

Answer 5

As everyone said the debt consolidators will negotiate and allow you to make minimum monthly payments. But there will be no reduction in the principal debt amount.

Whereas in a debt settlement, your principal debt will be reduced to around 30% to 70% depending on your credit cards. You can make afordable monthly payments and get out of debt within 36 months which will depend on how much you can pay as monthly payment.

Check out this debt settlement company. They have helped me regarding in the same unsecured debt problem.

http://www.debtfreeafterall.com

Good Luck

Answer 6

I have placed this in the source box. There is a wealth of information there and a great free debt management software program. I bookmarked the site as I return to it often for the advice it offers. I hope this helps you.