Should I use a Debt Consolidation service?

When most companies refer to Debt Consolidation as a “solution to all of your troubles”, they may actually be wrong. Debt Consolidation is pretty much just picking a new loan to cover the old, except in the Consumer Credit Counseling Service case. I have spent quite a long time working in a bank doing recovery work. Unfortunately, that included some debt consolidation companies and people who actually thought they were still working with a Consumer Credit Counseling agency when they really were not. This content is for the consumer, so that they don't jump into a debt consolidation company without actually knowing all of the facts.

The first question you want to ask you is what level of debt are you trying to consolidate? And what type of Debt Consolidation are you looking for? Now debt consolidation of a student loan is different from the debt consolidation of a house or a credit card. Debt consolidation companies seem to make everyone who knows nothing about them think that they can use them. This may not be true. I am just here to inform you of your choice in the matter of doing debt consolidation or not doing debt consolidation.

The Myth behind Consumer Credit Counseling Services (CCCS)

We will start with the Consumer Credit Counseling Service side of Debt Consolidation. I think this is probably the most important one today. Consumer credit counseling Service companies usually work with banks and collection agencies to reduce or sometimes eliminate you debt. Sound familiar. Well the truth is these companies my actually be costing you your hard earned money. How will a consolidation company cost money? Well, debt consolidation companies like the consumer credit counseling service have employees to pay. Even though they say they are not for profit doesn't mean that you won't have to pay something to use that service. Usually they charge a monthly fee could be $3 could be less could be more.

The cost of Debt Consolidation can be a little tricky, but it is something that you are going to have to figure out on your own by asking all the right questions you will need answered. Say you have 10 credit cards and you are current to four months (0-120 days) past due on them all. You do not own any real property, such as a house, or condo. Then you may want to look into debt consolidation, but only after you answer these questions from each of your credit card companies. Will my interest rate go up if I use consumer credit counseling? Will my loan be considered defaulted if I begin using consumer credit counseling? Does your bank, or Credit Company, offer loan re-aging to avoid a charge off / write off if I use a debt consolidation service.

If you call your credit companies and they say, they don't increase the interest rates, they work with debt consolidation companies, they do re-ageing of loans to avoid charge off, then you should considering debt consolidation. Chances are that only half of your credit card companies even work with debt consolidation firms like the consumer credit counseling service (CCCS).

Would I want to use a Consumer Credit Counseling Service?

Ok so say none of your credit cards work with CCCS companies. You could still use CCCS anyway, but would you want to? Debt Consolidation companies like CCCS are very good at money management. First CCCS creates a proposal for each bank / credit company that you use. They submit the proposal to the banks and wait for approvals. When a company doesn't work with CCCS they do not send back an approval or if they do they mark it as declined. The first proposal from CCCS to these banks is going to outline your available income amount and the amount that you are willing to pay each month to begin this repayment schedule. Banks will not start CCCS companies if the loan is Charged off or written off already so I would not recommend trying. So the bank approves the proposal then they let you, the consumer, know the proposal has been accepted. At that time then you stop making payments to your bank and start making payment to the CCCS Company, but only for the loans that are included in the accepted proposals. You could pay the others but you will not want to pay the proposal amounts, pay at least the minimums on those. You may want to make sure that the CCCS companies know what each accepted minimum is or your credit could be affected.

Next you have your proposal; you are going to save $30 a month and pay off your loans in less time. Great, that is the Idea of CCCS companies. This happens all the time and they help you by reducing your minimum payments for the companies that have lower interest rates, so they can use more money to pay off the highest interest rates first. Sound like a good idea?

It is unless...

Your credit card companies / banks do not work with CCCS, or they automatically default your loan for using CCCS which can cause you to pay a higher interest rate. Also, it’s not a good idea if you want to keep a perfect credit rating. What happens sometimes is that a bank has to honor the bank note that you used to get your loan, so your minimum payments according to that are say $100. The CCCS Company starts a proposal for $70 and the bank accepts. Every Third month your loan will fall another 30 days delinquent affecting your credit report. Eventually the loan will hit the write off stage and some banks will re-age the loan so it doesn't charge off but some will not. This write off will then drop your credit score about 100 or more points. Well If you don't really care about your credit score at that time, it is better then bankruptcy for everyone.

What about using a Debt Negotiator?

If your loans are bank charge off and you want to consolidate. This is probably not a good idea at that point. What you would probably want to use is a Debt Negotiator. A debt negotiator will charge you a small percentage to settle your debts with your companies for a fraction of the cost to out right pay them. Some banks accept as little as 25% of the total balance while others will ask for 80% to settle. In cases like this you should probably expect to pay about 50% of the total amount in one lump sum payment.

Basically, when working for this bank I was a debt negotiator for the recovery department. I was the department that these consumer debt negotiators would call and try to work out some sort of agreement for funds payments. I was very good at my job and I would push for as much money as possible from these people but no matter what, I had to give in somewhere. When dealing with a customer directly I would almost never settle a debt for half, because I could tell you had all the money, but with debt negotiators I just couldn't read them. I didn't know if they had more money to pay me with or were just throwing numbers up to see if I bite on them. That is why I would recommend using a debt negotiator especially if you just are not that great with debt negotiations, and most people just are not, and it showed. Even when people start playing hard ball with me I could just tell if they had the money or not, so if it is negotiations you seek, get a debt negotiator.

The Secure Method of Debt Consolidation

So let’s say you own a house and it does or doesn't have any equity. Now is the time to do a consolidation (click here for free quote). Did you know that you can make one payment per month for all of your bills and pay half what you were paying before. Then you can still pay all the loans off in the same amount of time. Well that type of consolidation is basically refinancing and using the equity to pay off the other bills that you have with higher interest rates.

No Equity? That’s fine too, banks and Debt Consolidation firms will work with you to achieve a better result.

I would once again be careful with this. People doing debt consolidation who do it themselves usually make big mistakes. They take out second, third, or even fourth mortgages, they don't read the fine print. They get screwed. What you really want is one mortgage. The reasons for this is because you may get into a bind then have a hard time paying your loan back. Well, in many states, even after a foreclosure, they cannot collect on first mortgages. There are laws to protect the consumer from being left with large amounts of unsecured bad debt.

When dealing with this type of debt consolidation you would want to think is all my bills going to be in this one loan? Is the loan secured or is it unsecured? Do I want to put my house up for collateral? Well, if the consolidation you’re talking about only uses the equity in your home to pay off your bills lowering your payments, then why wouldn't you do it (free quote)? If the debt consolidation may leave you to a place where you are still not sure if you are going to be able to pay back that kind of money every month then don't do it.

Also, when taking a new loan, always look for a fixed rate loan. It may be a 0.25% higher then the variable loan but it is always going to be the same payment every month. Banks like to lure you into taking loans with variable interest rates because the introductory rate is so low. Well, what happens in 6 months or 2 years when the rates double? Your job isn't going to pay your more money.

Some home loans are started with a balloon payment. Those are great for the first two years when you only pay half the accrued interest. When those first two years are over you better get another loan quick to cover it because your new home payment could be 3 times the payment your were just making. And don't think that a bank isn't going to charge you a fee for early payment, usually your talking anywhere from $500 to $1500 or more dollars, just for and early payment penalty. So, read the fine print. Take it to a lawyer if you want. And if there is optional title insurance for your home, you should probably purchase it when you do a title transfer. I have seen too many cases where the home owner buys a house with an already attached lien

Student Loan Debt Consolidation

Student loan consolidation is a great idea for students. If you have over $10,000 in student loans from more then one lender, you might want to look into consolidation. Basically the reason for this is because they can lower your monthly payments so low that you may only have to pay back $50-$100 per month for a $20,000 loan.

Just like other loans, you may want to read the fine print. You see even though they can lower your monthly payment they might increase you monthly interest rates. Remember the lowest interest rates are always the best interest rates even if you have to write 6 different checks each month. This means that you will be paying off the loan in less time. But if you can not afford to make 6 payments a month for 3 times as much money as you would if you consolidated, then defiantly look into debt consolidation.

I would recommend that you check National Legal Debt Centers get yourself a free quote and see exactly what it takes to get you back on your feet.

Debt consolidation can be the light at the end of the tunnel you were looking for. It could also mean, if you’re not careful longer payments, higher interest and certain failure. In any case, contact the Debt Consolidation companies and see what each one offers. Also, CCCS is generally for unsecured credit debts, and they may not always be helpful, because you can still end up with a bad credit rating for just using them. Although, for some, you could get out a debt faster then you would ever be able to do yourself. For home loans and student loan debt consolidation just make sure you read the fine print, and try to stay away from the "paying forever" strategy with lower payments, unless that is your goal. Of course give the CCCS and Debt Consolidation companies a ring, it sure couldn’t hurt