Debt consolidators?

Question

Is it a good idea to go with a debt consolidator to take care of medical and credit card bills? I have a baby on the way in a few weeks and I would love to free up some money...

Answer 1

I can't say this strongly enough.
If there is any way for you to manage this on your own, I would do that.
Why?
Because when buying a house, which is almost certainly the most important large purchase and use of credit you will ever be part of, debt consolidation is the equivalent to bankruptcy.

I bought my first home about 2 years ago, and have since refi-ed and both times the debt consolidation thing came up and everyone I spoke to said the same thing...
debt consolidation=bankruptcy

Obviously, if you CAN'T get a handle on your debt any other way, then this is the way to go. I would make sure you find a reputable organization, as I've heard some places end up charging you fees so high that its more expensive than the debt itself.
Anyhow, the other thing I would try would be to actually call your creditors. Many of them may be willing to lower your interest rate and close your account. Thats really most of what debt management companies do.

Answer 2

Jessica,
Now is a great time to get out of the habit of spending money you don't have (which is what credit is). Do yourself a favor. Start reading Total Money Makeover by Dave Ramsey. Go to his website or borrow it from a library. It's fun to read and it helped me clean up a huge amount of credit card and car debt the good old fashioned way.......by spending less that what we make. Getting a debt consolidation loan doesn't free up any money. It just moves debt around and frees up the possibility of you getting deeper and deeper into debt. PLEASE read this book. It is do-able, motivational, and actually very rewarding. Trust me on this one....I can sleep at night these days because noone is calling me because I owe them money!

We have friends who were in the same debt predicament we were. We got this book and used the principles to have all our debts except our home paid off within 17 months. Our friends ignored their debt problem and filed for bancruptcy---it was a horrible and humiliating experience for them.

You don't know what tomorrow brings. You can't keep borrowing and hoping that you will never have any financial emergencies like cars breaking, kids getting sick, etc. If you have your finances in order you'll be able to take care of those things.

Answer 3

It can be a good idea, since interest rates can be lower than for example credit card rates, but if you take the attitude that you're saying of "freeing up some money" then you're just digging yourself into a deeper hole - both the new spending AND the colsolidation loan have to be paid back, you know.