Pro's and Con's of Consolidation?

Question

Who would you suggest going thur

Answer 1

NO ONE AT ALL!!

Debt consolidation companies are a rip-off. They don't do anything more than what you can do yourself. They are supposed to lower interest rates and then combine your credit cards' payments into one payment per month...big deal! You can calculate how much you need to pay towards debt yourself, by simply adding up the minimum payments for each of your debts! You can negotiate lower interest payments or payment due date extensions on your debts too, by calling the creditors(the sooner you call, the better and the more willing they will be to accomodate you).

Most times, debt consolidation places do not work effectively and they screw up a lot of things. They deal with 1,000s of peoples' accounts, therefore they do not put the same amount of effort or care into dealing with your accounts as you would probably do yourself. (After all, it's not THEIR credit that gets screwed if they make a mistake!) They have you send a single payment per month to them, and then they disperse this single payment as little payments to each of your creditors, but they tend to mail out these payments late. When you get a late fee, they usually claim that it is "not their problem." Essentially you end up doing all the "dirty work" for them, they accept no blame, and you wonder what they are really doing for you to help you in the first place. A lot of debt consolidation programs don't do anything more than you can do yourself, but cause you MORE inconvenience and stress. Plus, they charge you MORE MONEY! They charge monthly fees for "maintaining" your accounts, even though most consolidation companies' account maintenance is ineffective at best. If you complain to them about these monthly fees, they will be quick to point out that it is "worth it" because they are saving you interest, but remember...you can always negotiate lower interest rates yourself. Plus, sometimes the fees that you end up paying to a debt consolidation company equals MORE than the amount that "they" save you in interest. And if you're partway through your "debt program" and realize this and try to cancel, they will usually try to sucker you with a ton of early termination fees or will hold on to your initial debt program deposit.

Did I also mention the bad effects that debt consolidation has on your credit? Some debt consolidation companies report that you're on a "debt management plan" on your credit reports(this, however, falls off when you pay off the debt). Some debt consolidation companies also close out your accounts. This hurts you because then you will not be able to use the accounts again to reestablish good credit. Also, having a prolonged 10-yr credit card closed will hurt you because it will drastically lower the "average age of your credit accounts". "Length of credit history" is a factor of your credit score, therefore it is best to keep long-standing accounts open. "Variety of credit" is another factor, so having little or no accounts open will also hurt you.

The only debt consolidation that would be possibly worth it, would be a debt consolidation LOAN...not a debt consolidation program with a debt counselling company. For example, if you have 5 credit cards with subprime 21% APR, but you also own a home, it'd be a wise move to pay off these high interest credit cards with a home equity line that has an interest rate of say, 8%. But keep in mind that sometimes home equity lines of credit can bring down your score too, because it is a new account(lowers the average age of your credit accounts).

Do not listen to debt consolidators! They are as much of rip-off artists as lawyers or slick used car salesmen or the sales reps of TV infomercials!

Answer 2

I also agree that the first person is correct. I was in a debt consolidation program when I was 19. I didn't have a ton of debt, but it was enough to drag me down because I had lost my good paying job and was only working part time. With all of my bills I was paying only $80 every 2 weeks to the program. It would have taken me into my 30's to pay it all off that way! I eventually ended up filing for bankruptcy but am getting back on my feet and am being much more responsible. It is possible to recover from serious debt, it just takes a lot of time and patience.

Answer 3

Yes the first person is right----

Debt consolidation is a complete joke. It will lower your credit score, and you may very well end up paying more then you otherwise would. Alot of people do it simply for the ease of paying one bill. But financially it is not a smart move at all...and is one of the most common legal scams on the american public.