Is Debt Consolidation a Wise Choice?

You have probably heard the radio or TV ads for debt settlement companies. They promote services to consolidate debt and help you avoid bankruptcy. To give you an idea how this works, let’s say you have four credit cards totaling $20,000.00 in unsecured debt. The debt settlement company will claim that they can settle your debts for around $12,000.00, or about 60% of the total debt. They will charge you a fee equal to around 15% of your total debt, or about $3,000.00 for their services. This means that your total payment to settle $20,000.00 in debt is $15,000.00. To have the money available to negotiate the settlements, you will pay monthly payments to the debt settlement company of about $625.00 for approximately two years.

During this time, the debt settlement company will recommend that you stop paying your credit cards so that you can make the monthly payments to them. By using a debt settlement company, there is no guarantee your creditors will settle or, even worse, they may decide to sue you. Additionally, debt consolidation may do little to save your credit rating.

If a creditor refuses to accept the company’s offer, you are still obligated to pay the debt. Just because a debt settlement company claims they can settle your debts, there is no guarantee that a creditor will agree to the settlement offered. When you stop sending money, your creditors get angry. Though you use a debt settlement company you can expect to receive collection calls or, your creditors may decide to sue you. If you are sued, the debt settlement company will not represent you in the lawsuit.

If you hire an attorney to represent you, the debt collectors may not contact you. If you file for bankruptcy, then no creditors may contact you or attempt to collect their debts. You may be better off if you file bankruptcy rather than choosing a debt settlement company. Every situation is different, and you should call for a free bankruptcy consultation to find out the best course of action. Call us – we can help.