If you’re living under the weight of financial struggles, debt consolidation may seem like the answer. Unfortunately, debt consolidation is rarely the solution to debt problems. Many of our clients who ultimately file for bankruptcy tried debt consolidation first. The truth is many of these people would have been much better off if they had filed bankruptcy from the start.
Know that we are not in the business of talking people into bankruptcies they don’t need. We are in the business of helping people get out of debt and getting the fresh financial start they deserve.
The Two Main Debt Consolidation Options
1) Hiring a debt consolidation company. They will collect a monthly fee from you and attempt to make settlement deals with your creditors. Generally, these companies are paid by taking a percentage of your monthly payment off the top. They keep the rest of the funds until there is enough in the pot to make a lump sum payment on a settlement deal, one creditor at a time.
2) Taking out a sizable loan. The loan is used to pay off creditors. Then one payment is due on the loan each month.
The Risks of Hiring A Debt Consolidation Company
At first blush, hiring a debt consolidation company may seem like a good idea. However, there are a host of things that can go wrong.
What we typically see is that people make their monthly payment to the debt consolidation company, but ultimately none or only a few of their smaller debts get settled. Leaving them out all of the money paid to the debt consolidation company, and ultimately filing for bankruptcy anyway.
Here are a few other things that can (and do) go wrong:
- You are sued by your creditor. This can ultimately lead to wage garnishment or bank levies.
- Even if you settle one debt, your other creditors will still continue collection efforts against you.
- Your credit score is continuing to drop, and each missed monthly payment is reporting on your credit report.
- Interest fees and penalties are still accruing – you’re getting deeper into debt.
- Many creditors refuse to work with debt consolidation companies.
- It may not provide an overall solution to your debt problems (many debt consolidation companies only deal with credit card debts).
Further, if you end up filing for bankruptcy your case may be made more difficult. Both debt settlements and payments made to a debt consolidation company will be heavily scrutinized by the bankruptcy trustee.
Debt Consolidation Companies Are Not Doing Anything You Can’t Do For Yourself
- You can settle your debts with your creditors on your own. In fact, once you fall far enough behind on your payments, your creditors will begin to send you settlement offers in the 40-60% range. You can make a counter-offer with a lower amount.
- Instead of paying them a monthly payment, you can put a lump sum into savings each month until you have enough to settle your own debts.
- While the debt consolidation company may get your creditors to stop calling you, but they have not done anything to actually help you handle the debt. Know that you have the power to stop creditor phone calls yourself.
If you’re considering debt consolidation, we encourage you to meet with us first for a free consultation to learn about all of your debt relief options.
The Risks of Taking Out A Loan
Taking out a lump sum loan to pay off your creditors may be tempting. However, this option too comes with a host of things that can go wrong.
- This option often creates a “rob Peter to pay Paul” situation. If you can’t make the monthly payment on your loan, you have not solved your debt problem.
- Interest rates on debt consolidation loans can be astronomical.
- Your credit score and credit report are every bit as harmed by this option than by filing for bankruptcy.
- If you take out a home equity loan and you cannot make the monthly payment, you risk losing your home to foreclosure.
- If you ultimately need to file for bankruptcy, paying off creditors or taking out new loans prior to bankruptcy can cause serious problems with your case.
If you’re considering taking out a big loan to consolidate your debts, we encourage you to meet with us first for a free consultation to learn about all of your debt relief options.
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If you have questions about debt consolidation or bankruptcy call us today at (912) 351-9000 or contact us via the web to schedule a free consultation. We are here to help you get out of debt and gain the financial freedom you deserve.
For over 30-years we have proudly served the people in Savannah, Richmond Hill, Hinesville, Pooler, Port Wentworth, Tybee Island, Clyo, Ellabel, Midway, Springfield, Pembroke, Brooklet, Garden City, and Ludowici, Georgia.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.