Debt Consolidation: What is it?
Debt consolidation is where you take the debts that you owe for credit card debt and other liabilities and let one company distribute your one payment to all of your creditors.
The debt reduction process with an outfit like Consumer Credit Counseling Services (CCC / CCCS), Ameridebt or others takes years to complete. Note, however, that you will only get closure on debt consolidation if you make all of your payments, and if the company really does give the money to your creditors.
Debt Management Fails in Your Goal: Debt-Free
Why doesn't debt consolidation work? Let us count the ways:
- Law suits: Debt consolidation does not stop a credit card company or collection agency from suing you. For any reason. Just because they're getting impatient. And then they sue you, get a judgment, and your paycheck is at risk when the creditor goes after a wage garnishment to garnish your wages.
- No End Point: Exactly how many payments will you be required to make? There is no exact answer.
- Failure - Debt Consolidation doesn't work : Ask them their success rate. How many people start this process and accomplish their goal -- to get out of debt? They won't tell you.
- Payment Amount: It's either too much money each month ("I can't afford it!") or too little money ("the balance isn't going down... even after 2 years!"). Why? It's decided upon by the creditors, not based on what you can afford. They have it exactly backwards.
- Fly-by-Night Middleman:The "here today, gone tomorrow" company you're paying could one day disappear... with your money. What assurances do you have that they are solid and reliable?
- Payments Don't Go to Creditors: If you're going to break your back making who knows how many payments for who knows how many years... what guarantee do you have that the money you're sweating so hard for will actually get paid to the credit cards each month? Or is that just the "maintenance fee" for your shady middle man company?
And this doesn't even mention their biggest secret: entering a debt repayment program is a huge negative mark on your credit report, as big if not bigger than a bankruptcy. Your credit cards are turned off immediately.
Bankruptcy succeeds where each of these debt repayment options fall short. You can't be sued. There is a fixed number of payments. The payments are applied to your debts each month. The payment amount is based on your budget. The United States government (Department of Justice) administers the payments as the middle man. If you make the payment each month, you will be out of debt. Credit counseling "solutions" don't work. Bankruptcy actually will get you out of debt.
Does It Bring Certain Closure?
Can you repair debts this way? Just because you sign a contractual commitment for debt consolidation does not mean that your money troubles are behind you. In fact, we hear client after client tell us that they tried credit counselling or debt consolidation, but got so frustrated they had to stop it.
So, if you start a debt consolidation plan with debt councilors hoping to finally end the frustrating chapter of your life, chances are you will only drag it on for months and years. If you are really wanting certain closure, consider a Chapter 13 bankruptcy.
Dangers and Frustrations of Credit Counseling
Well, then. What can be so aggravating about debt counseling? For starters, these companies are not on your side. They are in business to make a profit, which is all fine and good. However, unlike an attorney, there is no duty to advise you to do what is in your best interests. A bankruptcy lawyer must represent you, the client, and your interests. No such duty exists for a paralegal or credit counselor. Besides, do not let the perception that a debt counseling company is a "non-profit organization" fool you. There is recent news about these people in trouble because the IRS and Federal Trade Commission (FTC) are investigating and have recently cracked down on these companies who are accused of lying about their true profit structure just to get tax breaks and your trust. The reality is that many debt consolidation companies are funded directly by the credit card companies that you want to get rid of. What kind of advice do you suppose you'll get from them?
Also, we hear of our frustrated clients coming to us because they paid lots of money into these schemes and never saw their balances go down. After giving them thousands of dollars for months and years, people finally come to us, realizing that the most effective way to wipe the slate clean, getting a fresh start, is using the services of a skilled bankruptcy attorney.
Requirements of Debt Counseling
Even if you wanted to knock your debt down using these companies, you will need to have a regular flow of income that far exceeds the money you spend each month on your bills. It does you no good to give them only $45/month to share with all your creditors. There is an income requirement which many people don't meet. An employee may talk you into signing an agreement even if it eats into your rent money, not because they care about your best interests, but because they may be getting a commission for each dollar they take in. Again, only an attorney has a duty to give you straight advice about what is in your best interests, not their own.