By Ryan C. Wood
The idea of consolidating your debts and paying them off for less or sooner is a great idea in a bubble. The reality is that it rarely seems to work and can cost you more money than merely making higher payments than the minimum payments on your existing credit card debts. The question is does it work? Well, as bankruptcy attorneys, we meet with clients every day that debt consolidation has not worked. As bankruptcy attorneys everything we do is by Court order and it is black and white. Bankruptcy is either right for you based upon your income, expenses or assets or it is not. Bankruptcy also is usually less expensive than trying to get out of debt with a debt consolidation company. Bankruptcy does not have to be the answer though. Yes, even though we are bankruptcy attorneys, you can get out from under your debts yourself.
1. You Can Consolidate and Negotiate Away Your Debts Yourself
Why do you need to pay a company to negotiate lower interest rates or negotiate a settlement of your debts? Do these companies have some secret that allows them to obtain a better deal for you than you can obtain yourself? The answer is no, they do not. The typical debt consolidation company will tell you that they can take over the payment of your debts and negotiate with your credit card companies and lenders to obtain lower interest rates and reduce the amount of debt you owe. You can do this yourself. Just take a few minutes and call your credit card company and let them know you are having trouble making the payments. You will be surprised at the results you can achieve by being persistent. There are also not for profit organizations that you can seek help from for free. You do not have to pay a company to reduce your debt.
2. Pay Off Your Credit Cards With Smaller Balances First
The easiest way to pay off your credit cards is to get rid of the smaller balances first and then apply the money you would be paying to the smaller balances to the larger balance credit cards. You will then hopefully be making significantly higher payments than the minimum payment on the larger balance credit cards. This is not easy to do and takes a lot of discipline. This approach is also assuming you have steady income, which unfortunately is not the reality for many given our economy. If you can stay disciplined, over time you will reduce your debt and eventually pay off your credit card debt without a debt consolidation company or having to file for bankruptcy protection.
3. Save Up Some Money and Settle Your Debts With Lump Sum Payments
Another approach is to save up a few thousand dollars and offer your credit card company a lump sum payment to settle the debts for less than what you owe. This approach is again assuming you are able to save a few thousand dollars, which is not easy to do for many. Many credit card companies will accept one-time lump sum payments for far less than what you owe them. This is one way a debt consolidation company will assist you too, for a fee of course. The debt consolidation company will request monthly payments from you until they have a lump sum to pay your credit card company and settle the debt. Again, you can do this yourself.
4. What Does a Typical Debt Consolidation Company Actually Do For You Then
The answer is they make money at your expense and usually do not obtain the debt relief you originally thought you were going to get. You may get some peace of mind for a little while, but ultimately if you did not have the money to make your credit card payments debt consolidation will not work. The debt consolidation will show you how much money you will save over a few years by allowing them to pay your bills for you with lower interest rates. These figures do not usually exist in reality. These are marketing gimmicks that show results that they never achieve. They will charge a fee, sometimes a flat monthly fee or a percentage of the monthly payment they request you pay to them. The problem is not all of your credit card companies will do business with these companies, so you will have four of your credit cards being paid by a debt consolidation company and then you will continue to pay your other debts. Time and time again we have clients that get sued by one or more of their credit card companies even though they are using a debt consolidation company. It is usually the credit card company that will not participate in the debt consolidation company plan. Once the lawsuit is filed, there is nothing a debt consolidation company can do for you and this is when most people seek the counsel of a bankruptcy attorney to finally obtain debt relief by Court order. New laws have been passed to limit the business practices of debt consolidation companies. The reality is that these companies are marketing machines. It sounds great, but does not seem to work.
If you believe bankruptcy may be the best choice for you though, please contact our Bankruptcy Lawyer or Bankruptcy Lawyer today to schedule a free consultation (877-963-9543).