Hello ladies. I am trying to figure out this whole debt consolidation and whether or not it's good or bad. It seems some people are adamant about it being a horrible idea, and others seem to love it. I personally do not plan on doing it because I only have two debts which I am working on one at a time. However, a friend of mine has several debts and he's extremely stressed out about how to go about paying them off, especially right now because he is in school and doesn't have an established career, but doesn't want to wait years before starting to work on them. Here's the thing, he owes for things like a few minor credit cards, but he had old personal loans he's defaulted on , including an eviction which alone is almost 5000.00 due to moving out before a lease on his apt was up, so they are charging him all years rent. I didn't ask him for an exact amount but I am going to assume he owes probably over 10,000 based on what I know. I suggested he negotiate with some of the companies but the thing is he doesn't have any money saved up to start paying right away, and since he's bad with money I doubt he'd be able to save up long enough to try to get some of them to settle because when you settle they want a lump sum right away I believe.
Anyways, I know with the economy and tough times we are in now many of you may have turned to consolidation, so I am wondering what your experiences and advice would be for someone in the situation my friend is in. Also, what companies are pretty safe and what companies are just trying to scam you ? If any of you know I would appreciate it, as this is kind of my solution to his problems but I don't want to give him bad advice and make his situation worse.
I would check out Dave Ramsey as well. He is adamently against debt consolidation and he has a method he recommends for getting out of debt. I'm not familiar with all the steps, but I am a fan of his methods for money management and living debt free.
Debt consolidation companies do the same thing your friend can do, the only difference is when he does it, it's free, no fees. Either way it's going to be a pain he just has to have the drive to take care of it. If all he can afford is $10 a week then that's what he should send in. I too recommend the Dave Ramsey book or better yet the class. He will learn so much & it will also give him the drive to get things taken care of. Just go to Dave Ramsey.com & go to "classes" type in your zip code & you will find a class in your area. You too should also look into the class it will benefit you for the rest of your life & it's not just about debt consolidation it's about life money management & everything a person should know about money.
I would highly reccommend Dave Ramsey Financial Peace University. He has a great system that really works. My husband and I literally just graduated from this class yesterday, and it is the best thing we have ever done! He has seven baby steps to follow that will help you to get debt free. I would suggest calling into Dave's show and asking if this is a situation that a bankruptcy would be better to consider. I know for fact that Dave Ramsey is strongly against the consolidation companies. He said they ALL are CONS! Dave is very smart financially because he has been worse off than your friend. He truly understands what it is like to be at the end of your rope! He is awesome!!!
Best of luck to your friend.
In his situation, a debt consolidation service would probably do him good. What people don't realize is that when you use a service like that, they do work to settle your debt at reduced intrest rates and can negotiate lower balances, by doing that, it still negatively affects your credit. But when a person is so snowballed into their debt and can't make the minimum payments, and collectors are calling every 5 minutes, a consolidation service is of use. It stops the collection calls and enables the person to have enough money to live. And the amount of stress it would alleviate would be tremendous.
Another thing for him to look into is David Ramsey's Financial Peace University. It is a class that will show you realistic ways to get out of debt and stay that way. I highly recommend it!
He should consider a bankruptcy. Working with a consolidation firm will not clear it up for years. His credit will be shot for years. Yes a consolidation firm may get some of the credit cards to back off but they won't be able to do squat with the landlord on the apartment deal. Also something you don't find out till later is you pay a fee to the consolidation firm (ok I know nothing is free but it is a big part of the problem) they will hold the payments you make until there is enough to "payoff" one of the credit cards. while still holding on to the money you pay monthly. we paid $1400 a month to a consolidation firm for about 6 months and nothing got paid off. they said they had to wait till they had enough to pay one of the bills. after 6 months of those payments we wanted out. we got back about $4000 of our money the rest was fees for them to help us. they weren't any help and we ended up filing bankruptcy anyway. by that time because we chose to try to "fix" our credit we also lost our home. Don't let it get that far. You can't put child support or student loans in a bankruptcy. everything else can go in. also it takes years to get a credit score fixed after a bankruptcy but it takes a lot longer with one of those credit counciling things as it won't start getting fixed till all those bills are gone. I know bankruptcy is not something to do lightly. but if he has no money to start fixing this he might want to consider it.
Go to a credit counseling center, they are usually very low cost or free and get advice from them. They are also available to help with the consolidation and other matters. I have found companies that want large sums of money up front, will not pay on your debt until after they have a good sum of your money. Larger credit card companies might be willing to settle for less it you can make a large sum payment, which can be a problem since you have already indicated there is not a savings.
Do NOT advise him to consolidate. He made a mess and now he needs to clean it up. No magic. Hard work. No need to further trash his credit.
He can go to the library (free), eBay (cheap) or a bookstore (around 20 bucks) and but Dave Ramsay's book, Financial Peace. It will give him concrete, step-by-step instructions to get out of/pay off his debts.
I used a company called Careone. It changed our lives about 4 years ago, and we are almost debt free. We continue to buy/lease vehicles, we're approved for same as cash promotions in stores, Etc. without any problem. I'm sure it dings your credit, but we're aren't getting turned down for anything.
