“NO” to Debt Consolidation!

Be careful, be very careful!  Debt consolidation and debt settlement companies will not help you get out of debt.  Here’s what you need to know.

Debt consolidation is when an organization specializing in debt management pays off all your debts.  In return, you pay the organization back.  In the end, you monthly bill may seem lower than what you were repaying on your own.  But, consolidating your bills means you’ll be in debt longer.  You have lower payments  because you lengthen the payment period (your goal is to get out of debt as fast as you can!)  This actually increased your total tab!  

And this bad idea gets worse:  Debt consolidation loans need to be secured by a possession (probably your car or your home).  Remember, it’s still debt!  Fall behind on this loan, and you’re putting them at risk for repossession.

Then, there is debt settlement.  Don’t confuse the two – debt settlement companies claim they can negotiate with your creditors to reduce the amount you owe.  This can be risky!  It’s a financial game of chicken – debt settlement may leave you deeper in debt.  These companies charge expensive fees. And, unless they settle all (or most) of your debt, you could accrue penalties and fees on any unsettled debt.  All while you fall further and further behind on payments.  This will leave you in worse shape than when you began.  Not paying your bills can result in collection calls, penalty fees and potentially legal action against you.  And, the continued late payments will further damage your credit score.

The standard advice for dealing with debt elimination is to seek the services of a financial coach, such as we are.