If you are really far in debt, are the debt management firms a good idea?

Answer 1

It is very, very, very difficult to get another loan.

Answer 2

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 - becuase they make money off of you.

Answer 3

You really have to do your homework on these. Some are great, some are not. Make sure you know the terms up front, and never get a variable rate. If they are lowering your monthly payments, make sure they aren't stretching it out for so many years that you're paying more in the long run. I work for a firm that does this (probably not in your state), and we will only help people get out of debt, and we teach these basic principals to people. Rule #1 -get a fixed apr. We only approve loans that save the client money over the short AND long term. Meaning, it saves you monthly now, and saves on the grand total in the long run. Many of these companies will save you money now, but drag it on so long that you are really paying through the nose. Just find out the fine print in the beginning. There are calculators on the web where you can input your rate, minimum payment, etc, and it will calculate how long it will take to payoff, and how much interest you will pay. Calculate what you're doing now, against what the firm is offering, and make sure that BOTH amounts are lower. Otherwise you might as well keep on with what you are currenlty doing.

Answer 4

The consumer counseling services are alright. They attach themselves to your credit report alerting the interested that you are a credit risk. What you can do is call each creditor and tell them you are willing to settle, negotiate with them, some will cut the amount owed in half and make payment arrangements on that. Throw away all credit cards except one, freeze that one in water in tupperware in the freezer, this will help curb impulse buying and just don't buy things that you don't have the cash for. That is what we do in our house, the only thing we owe on now is the house....it feels really good. In some cases, Bankruptcy is an option, if you are in way to deep. Good luck!

Answer 5

Stay away from CREDIT SOLUTIONS. You want a company which will work for you, not give you the instructions of how to handle it yourself.
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After having been with Credit Solutions for more than a year now, I’ve come to the realization that the company promises more than it can deliver.

To start, and most importantly, Credit Solutions makes statements during its sales pitch which are not only misleading but downright false. The prospect is lead to believe that Credit Solutions has a relationship with the credit companies and can therefore act as an intermediary to get the Credit Companies to wait while the client puts money into a savings account and thereby compiles money to work toward a settlement some day in the future. I, personally, remember this statement almost word for word as it was one of the most compelling reasons for taking on Credit Solutions.

Nothing is said during this sales pitch about how a credit card company can still go the legal route (Arbitration, and then a Lawsuit) at any time, other than to strictly point out that Credit Solutions will not act legally on the client’s behalf. Though this ‘disclaimer’ is made and made clearly, it is glossed over when the prospective client actually asks if lawsuits are something to consider. “They almost never happen.” is the response. (Of the 12 credit accounts I have handed over to Credit Solutions, 4 have gone to Arbitration. This is a whopping 33% of one client’s accounts!)

Besides the misrepresentation of the legal possibilities, Credit Solutions gives the client the impression of an efficient and professional office only until such time that the client actually needs to contact the company with a problem. Calls are not returned the same day, and most times not at all. When asked about Arbitration, the standard response is “We don’t handle Arbitration.” -thus leaving the client uninformed and ill-prepared. Those 'Client Service Representatives' who do offer to handle this subject tend to again gloss over the legal aspects as if Arbitration is merely a minor inconvenience. Should anything resembling a legal aspect arise, they are quick to lean on their disclaimer so clearly outlined in the contract. "We are not a legal representation." When brought around again to the misleading statements outlined above, their response is "Do you have that in writing?" The statement, of course, is never put into writing.

Credit Solutions insists you fax them all forms and papers received. They constantly say that faxes will be received “into your account” within 3-5 days. This again, is a big problem as many times faxes have not been found in my account for 2 weeks or more! It’s hard to feel comfortable with a company which doesn’t know its own shortcomings. When the fax is a legal letter, it makes things even worse.

When things do come to a legal head, the client is left with a feeling of desperation. No amount of ‘We don’t do legal perhaps you need to get a lawyer’ will alleviate the feelings of betrayal from a company one is paying supposedly for their expertise (as well as the fabled relationships with the credit companies.) Fear and anxiety cannot easily be swept away when the client is left sitting by the phone hoping that SOMEONE from the company will call AND that they will be able to help.

In contacting Credit Solutions, the client is put through a security check and then into the phone maze. Credit solutions’ phone maze is irritating to say the least. Besides being asked to confirm one’s client status not only on every call, but by every person the client speaks to, the phone system will also drop calls, give vague directions and circular forwarding before the client becomes angry and hangs up. Everyone that the client does actually speak to in person promises to pass on phone messages, but as already pointed out: returning calls to a client with a problem appears to be of low priority. The client is left angry, disillusioned and without recourse, as legal problems loom in their immediate future.

Would I have signed up with Credit Solutions had I known the problems? No... Will I stay with them now that I am more educated on their practices? Well, since I’m still paying the ‘service fees’ monthly, it seems more than likely. I will spend my time as best I can doing what I can to educate other prospective clients of this company about its misleading practices and performance problems.

Answer 6

They helped me. Lowered my payments. I had all my debt paid in 5 years. Doesn't affect your credit score, but, hardly anyone will give you credit. I was able to finance my van during the process. My rate was incredibly high, but I did it. Most credit companies will deny you credit again. Most closed my accounts which looks bad on your credit report, but didn't seem to affect my score much. It was the best choice for me. Good luck!