Debt Consolidation’s Affect On Credit Scores
Realistically, if you are at a point where you need help to pay off your unsecured debt, your credit score has already been affected. Entering into any debt consolidation plan will further hurt your score. Once you agree to a debt consolidation plan, credit card companies report this information to the three credit bureaus. Obviously, this has a negative affect on your credit score.
Debt settlement and bankruptcy take on a more serious tone. Bankruptcy remains on your credit report for ten years. Debt settlement plans pay off your credit cards one at a time. While you are creating an account with enough money to pay off the debt, no payments are made, and your credit report takes a beating with unpaid bills appearing regularly.
The good news is that the dropped score is only temporary if you use debt consolidation. As you pay off your unsecured debt, your score will rise.
What To Expect
With debt consolidation, you can’t expect your debt to be paid overnight. It will take years, usually three to five, to complete a debt consolidation program. A debt consolidation company negotiates interest rates and fees with the companies to whom you owe money. They’ll come up with one monthly payment that fits your budget, but still pays off the unsecured debt within a few years.
You will make a monthly payment to the debt consolidation program you choose. They will take that monthly payment, deduct any fee they are charging and then distribute it to your creditors. Once you enter into a program, you have to stick with it. Failing in a debt consolidation program will aggravate your situation. Late fees will start appearing on your accounts and many credit card companies will drastically increase your interest rates. Few will give you a second chance after that.
Watch for Scams
Consumer debt is at all time highs. This is not surprising considering the state of the economy. With this situation comes a number of unscrupulous firms waiting to get their hands on your money. However, there are legitimate debt consolidation firms available. You need to approach companies cautiously and watch for the key warning signs of a debt relief scam.
Ignore companies that charge a huge fee. Companies that charge a flat fee as soon as you request information should be bypassed. Compare fees between companies. Any that seem excessive are best forgotten. Never give out your social security or account numbers until you’ve signed a contract. A company asking for this information up front is likely fraudulent.
A company should never offer you a quick solution without knowing more about your debt, income and current interest rates. If you call for information and they tell you that debt settlement is your only option without looking at your finances, avoid them. If a company promises they can get you debt-free without anything showing up on your credit report, they’re lying. This is not legally possible. Check with your state attorney general’s office and the Better Business Bureau. These organizations will have up-to-date information on which companies have complaints against them.
Video: How to Choose Debt Consolidation Companies?
Tips From Attorneys
One of the most important tips an attorney will tell you is to really research a debt consolidation company before signing any contract. Read customer reviews, BBB reports and even talk to your attorney general. They’ll know if a company with a stellar reputation.
Be very careful when looking at debt consolidation loans. Pay close attention to the fees, length of the loan and interest rates. Some programs actually cost more in interest because of the length of the loan. If you enter into a debt relief program, always ask about workshops or classes that help you learn how to manage your finances. These are critical to remaining debt-free.
Effective Debt Consolidation Techniques
With a failing economy, credit card companies are especially wary. They know that many consumers are struggling to pay their bills. It is very possible to negotiate lower rates and get them to drop late fees. Remember, they would rather lower interest rates than not be paid at all.
Eliminate the extras. Drop everything that you really do not need. Premium cable or satellite television service, an expensive, gas-guzzling vehicle, take-out meals-these are all unnecessary luxuries. Take the money you save by scaling down and put that extra cash towards your unsecured debt.
Video: How to Save Money
With a debt consolidation program, you’ll be paying one bill. If you’re payroll offers direct deposit, have the money for that one debt consolidation payment taken out weekly and put into a separate account. You’ll know the money is there every month and you’ll have money left over for household expenses.
Fifteen Debt Consolidation Companies
American Consumer Credit Counseling
Auburndale, MA
1-800-769-3571
CareOne Credit
Columbia, MD
1-800-498-1134
Christian Debt Consolidators
Deerfield Beach, FL
1-866-958-DEBT
Consumer Credit Counseling
St. Louis, MO
1-888-656-CCCS
Debt Consolidation Care
Carson City, NV
1-800-601-1579
Debt Relief USA
Hoboken, NJ
1-800-936-6618
Debt Rite
1-800-558-5597
Lewisburg, WV
Four Peaks Financial Services
Scottsdale, AZ
1-800-727-1478
Franklin Debt Relief
Chicago, IL
1-877-274-1260
Freedom Debt Relief
San Mateo, CA
1-800-544-7211
Heritage Debt Relief
Dripping Springs, TX
1-866-852-2273
Less.Com
Rochester, NY
1-800-543-9573
Superior Debt Relief Services
Fort Collins, CO
1-888-366-3414
Total Debt Relief
Vancouver, WA
1-360-449-5933
USA Debt Relief
Tallmadge, OH
1-877-945-8655
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