Q&A: What are the pros and cons of debt consolidation?
What are the pros and cons of debt consolidation?
I have 10grand in credit card debt, plus about 25grand in car loan debt. I have heard that debt consolidation is actually worse for your credit than bankruptcy, is this true?
Best answer:
Answer by CatDad
Debt consolidation can mean two completely separate things: the first is getting a traditional bank loan to consolidate all your debts into one lower monthly payment. You need good credit to qualify. This does not damage your credit.
Debt consolidation also refers to a practice of trying to settle your debts for less (credit card debt only…not car loans). These firms have you deliberately default on your payments and trash your credit rating to settle for less. When you use such a firm, the monthly payment you make is going towards their settlement fees and to build a settlement account. Their fees are taken out first. Your credit cards will not be paid and will go into complete default during this process, which ruins your credit rating. This is deliberate so that they can attempt settlements for 50%. These firms have warm-fuzzy “feel good” ads which give the impression that they are doing your credit card companies a favor and that they’ll gladly work with them.
Many credit card card companies refuse to work with debt settlement firms. Your creditors are not obligated to take any settlement from anyone. You can never predict how your creditors will respond..they might settle at 50%…or they might serve you a summons, take you to court…and if they win, you could be looking at wage garnishment. If the process fails you can end up in a much worse financial situation where you’d have to file for Chapter 7 bankruptcy.
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I suggest you look into taking out a new loan from YOUR BANK for an amount that will cover both debts IF you can get a better interest rate and have the collateral. The bank will pay off the previous loans and then you pay them.
I don’t suggest going w/ a CCC, they can trash your credit. If they settle you could get an R9 rating (the same credit rating as a bankruptcy) I’d talk to a lawyer about doing Ch7 bk if you qualify it’d be a better route to go than paying a CCC to trash your credit the same way with a settlement (while they make a profit off of you)
I will highly recommend you to go for debt settlement, which as positive impact in your credit report and for your budget. Your not going to pay the full amount of the debt your just gonna pay 55% or less of the entire debt, and you’ll be in credit consulting also that will increase your credit score. You can call me @ 561-404-0190… I’m a financial advisor, so i can give you more information about this.