How reputable are debt consolidation companies?

Question

How reputable are debt consolidation companies?

Answer 1

Some are reputable. Some are shysters. The Dept of Justice has a database of these companies that will give you an idea of where to go to find a decent one.  

Answer 2

depends on who you use like any other business.  What you should look for is a company that is non-profit, uses accredited counselors and has programs to not only manage your debt, but give you the education so that you do not get in the same problem down the road.

I would suggest www.cccsinc.org.  1800-251-CCCS (2227).

Answer 3

Try using: http://DebtAnswersNow.com

I used their service a couple months back and they consolidated all my debt and lowered my total debt 40%.

Answer 4

Myth: Debt consolidation saves interest, and you have one smaller payment.

Truth: Debt consolidation is dangerous because you treat only the symptom.

Debt consolidation is nothing more than a "con" because you think you've done something about the debt problem. The debt is still there, as are the habits that caused it - you just moved it! You can't borrow your way out of debt. You can't get out of a hole by digging out the bottom.  True debt help is not quick or easy.

Larry Burkett, noted financial author, says debt is not the problem; it is the symptom. I feel debt is the symptom of overspending and undersaving. Our certified counselors will not recommend debt consolidation for a client. Why? Because debt consolidation doesn't work.

Debt Consolidation Statistics

A friend of mine works for a debt consolidation firm whose internal statistics estimate that 78% of the time, after someone consolidates his credit card debt, the debt grows back. Why? He still doesn't have a game plan to either pay cash or not buy at all. He also hasn't saved for "unexpected events" which will also become debt.

Debt consolidation seems appealing because there is a lower interest rate on some of the debt and a lower payment. However, in almost every case we review, we find that the lower payment exists not because the rate is actually lower but because the term is extended. If you stay in debt longer, you get a lower payment, BUT if you stay in debt longer, you pay the lender more, which is why they are in the debt consolidation business.

Debt Consolidation Example

For example, let's say you have $30,000 in unsecured debt, including a 2-year loan for $10,000 at 12%, and a 4-year loan for $20,000 at 10%. Your monthly payment on the $10,000 loan is $517 and $583 on the $20,000 loan, for a total payment of $1,100 per month. The debt consolidation company tells you they have been able to lower your payment to $640 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans together into one. Sounds great, doesn't it? Who wouldn't want to pay $460 less per month in payments?

But they don't tell you that it will now take you 6 years to pay off the loan.  This may not sound that bad to you at first unless you realize how much more you will actually pay in additional payments. You will now pay $46,080 to pay off the new loan vs. $40,392 for the original loans, even with the lower interest rate of 9%. This means you paid $5,688 more for the "lower payment". Not such a good deal after all. This example shows you why they are in the business - because they make money off of you.